Supply disruptions balance the oil market
The oil price has risen substantially since March, when we believed that its next movement would be down. Increased activity in the shale oil fields, which we expected then, is beginning to show now, nearly three months later. This shows what pressure shale oil producers have been under. At the same time, supply disruptions have rapidly improved the market balance. As far as the second half of the year is concerned, it will be particularly difficult to assess how Nigeria's and Venezuela's complex production will develop. We still think prices will drop somewhat, but not as much as in March, and we see a clearly increased upside risk in our price assumption, with Brent at around USD 40/bbl by year-end.
Base metal prices diverge
Of our key cases this year, zinc prices have taken off, rising by 30% year-to-date. However, nickel has remained still, even though the market balance looks increasingly strained. After the zinc increase, we see nickel as the main commodity with a chance of a 15% price increase by year-end, with USD 10,600/t as our target price. We keep our year-end forecast for zinc at USD 2,200/t and lower our copper forecast from USD 5,000/t to USD 4,500/t, as mining companies continue to increase production and China is not meeting growing demand.
Fed indecisive and Brexit looms
Fed Chairwoman Janet Yellen recently stuck to her earlier statement of two rate increases this year. The strong correlation of gold and precious metal prices to whether the Fed raises rates creates a downside risk for precious metals, as two increases have not been priced into the market. On the other side of the scale is this week's outcome of the UK referendum. We believe that a clear "leave the EU" outcome, say 60-40, will spark a new sustainable increase in the gold price, where the upcoming elections in Spain, Belgium and the Netherlands may stimulate an increased interest in gold as a safe haven.
Utbudsstörningar balanserar oljemarknaden
Sedan mars då vi trodde att nästa rörelse för oljan skulle bli ner har oljan stigit kraftigt. Ökad aktivitet i skifferfälten som vi väntade oss då, har börjat synas nu istället, nästan tre månader senare. Det vittnar om hur pressade skifferproducenterna har varit. Samtidigt har utbudsstörningar snabbt förbättrat marknadsbalansen. Andra halvåret blir nu ett svårt vågspel på hur Nigeria och Venezuelas komplexa produktion utvecklar sig. Vi tror fortfarande att priserna kommer ner något, men inte så mycket som i mars och vi ser helt klart ökad risk på uppsidan i vårt prisantagande med Brent kring USD 40 i slutet av året.
Av våra "key case" detta år, stigande zink och nickelpriser har zink tagit fart och stigit med 30 % så här långt. Nickel ligger dock kvar trots att marknadsbalansen ser allt mer ansträngd ut. Efter zinkuppgången håller vi nickel som främsta råvara med chans att stiga 15 % i pris till slutet av året med vårt prismål på USD 10600. Zink håller vi kvar på USD 2200 och koppar tar vi ner från USD 5000 till USD 4500 då gruvbolagen fortsätter öka produktionen och Kina inte svarar upp till ökad efterfrågan.
Fed velar och Brexit spökar
Fed:s ledare, Yellen behöll utsagan om två höjningar i år. Guld och ädelmetallers starka korrelation till huruvida Fed höjer eller ej skapar risk på nedsidan i ädelmetallerna då två höjningar inte är prissatta i marknaden. I andra vågskålen ligger veckans utkomst från omröstningen i Storbritannien. Ett tydligt "lämna EU" resultat, låt säga 60-40 tror vi är gnistan till ett ny hållbar guldprisuppgång där kommande val i Spanien, Belgien och Holland kan ge influenser som ökar intresset för guld som säker hamn. Vår prognos med guld till USD 1300 har precis infallit och vi höjer den till USD 1400 på större sannolikhet för europeiskt tumult än en aggressivt räntehöjande Fed under andra halvåret.
Today's biannual OPEC meeting was crowded, as has been the case since November 2014 when the group decided to maintain output despite falling prices. The December 2015 meeting led to the official production target being abandoned without any agreement on new output targets. Today's meeting was not about any major policy; instead, it signalled that OPEC can still work together toward a deal, if it is necessary. OPEC will stick to its policy of unfettered oil production. It was the second subsequent meeting with lack of an oil production target and oil traded lower.
We see low risk of a coordinated action at the June OPEC meeting on Thursday and reiterate our view that there is zero chance of an OPEC cut this year. With few event risks on the radar, we think the next big price turn will come from structural changes. The rebalancing is underway but the latest tightening comes from transient outages. Ultimately, the rebalancing depends on the ongoing contraction in US shale but the current price rebound is throwing a lifeline to most shale fields. Saudi Arabia will face two choices: earn a higher oil price and leave additional barrels to North Dakota's cowboys, or tap some of its spare capacity. Neither choice is price bullish.
The extraordinary OPEC meeting planned for this month has sent oil prices higher as markets have increased hope that OPEC will reduce output and finally agree on a production cut. However, expectations have faded recently after Saudi Arabia's crown prince made its actions conditional upon Iran freezing output as well. We maintain our view that it is too early to cut production and argue that the US shale oil industry will first have to be ice cold and that Iran must regain its lost market share before OPEC will be able to do so. To us, this means the cut could take place in 2017, if at all, and prices could slide back to the low of USD 30.
Lower oil prices in next movement
After the oil price rise in March, we are now seeing several signs that this journey is reaching the end of the road and that the next movement will be downward. Shale oil is no longer flowing, Nigeria and Iraq have had production disruptions and let us not forget that the market is speculating about decreased production from OPEC and Russia. We are contrary to the consensus opinion and believe that all these forces are behind us and that the price will reach USD 30 rather than USD 50.
Mining companies strengthen base metals
While the oil price bottom is still ahead of us, we believe that base metals have hit the cyclical bottom after four years of decline - at least as a group. Copper production still looks a bit too high but for zinc, nickel and aluminium, there has been a massive rebalancing of the market on the producer side. We see zinc as the base metal with the best fundamentals and raise our forecast to USD 2,100.
The Fed caught in a trap
The Fed's weak rate hike has led to the largest rise in gold over three months since the euro crisis was at its peak. The feeling that the Fed has ended up in a situation where it cannot control the economy by means of the interest weapon creates a strong need by investors to park some of their money in a safe-haven. We do not believe that the Fed's situation will improve in the next six months, and although gold has already passed our strong belief of a 12% higher price this year, we are raising our forecast to USD 1,300.
Spring rally for coffee but weak wheat prices
After the winter, wheat prices have come under pressure, with high safety stocks worldwide and good conditions for the new harvest to be good. Coffee prices have jumped by 18% in March. Rising coffee prices in the spring are not unusual and according to the seasonal pattern, the price usually holds up until May.