Goldman Sachs Group Inc. and Morgan Stanley increased their oil price forecasts by more than 20 percent, signaling a bullish outlook for commodities.
Goldman, which correctly advised investors to sell crude oil and copper last month before a price slump, boosted its 12- month prediction for Brent crude to $130 a barrel from $107, analysts led by Jeffrey Currie said in a report today. Morgan Stanley raised its Brent estimate by 20 percent to average $120 a barrel this year and by 24 percent to $130 in 2012, it said.
While Goldman and Morgan Stanley join JPMorgan Chase & Co. in saying price declines may present a buying opportunity, interest-rate increases to curb inflation and the European debt crisis have raised concerns that global growth may slow. China, the biggest consumer of everything from energy to copper and soybeans, has increased interest rates four times since mid- October and boosted bank reserve-ratio requirements eight times to cool the fastest inflation since 2008.
“Economic growth will likely be sufficient to tighten key supply-constrained markets in the second half, leading to higher prices from current levels,” the Goldman analysts said. They also advised buying copper and zinc.
Brent advanced as much as 1.5 percent to $111.72 a barrel on the ICE Futures Europe Exchange today after a 2 percent drop yesterday. Copper for three-month delivery added 1.5 percent to $8,925 a metric ton on the London Metal Exchange.
The Standard & Poor’s GSCI spot index of 24 commodities lost about 10 percent through yesterday since New York-based Goldman told investors on April 11 to sell a basket of commodities including oil, copper and cotton, and in the same week recommended they stay “underweight” in raw materials. Global manufacturing activity measured by the JPMorgan index slowed for two consecutive months and stood at 55 in April. A reading of 50 and above suggests expansion.
Prices of metals and energy dropped to levels “more in line with near-term fundamentals,” Goldman said. A sustained loss of Libyan crude production because of the conflict there and disappointing output from non-OPEC nations will tighten the oil market to critical levels in early 2012, it said.
The Organization of Petroleum Exporting Countries will “very likely” raise production to make up for an estimated 1.5 million barrels a day shut in by Libya’s civil unrest, Morgan Stanley analysts led by New York-based Hussein Allidina and Chris Corda said today. The group has an estimated 2 million barrels a day of idle capacity that can be quickly brought to the market, the U.S. bank said.
“We see flat prices moving higher as spare capacity continues its fall to untenable levels,” said the Morgan Stanley analysts.
Concerns over sovereign debt in Europe, the contraction in Japan’s economy and the end of the second round of quantitative easing in the U.S. are among “potential triggers” for a loss of confidence that post a risk to oil, Goldman said.
Money managers reduced their net long positions in U.S. commodity futures and options by 11 percent in the week ended May 17 to the lowest level since July, according to data compiled by Bloomberg. They also reduced bullish bets on oil to a three-month low.
The MSCI All-Country World Index fell 2.3 percent in the past three days and dropped 1.8 percent yesterday to the lowest level in two months on signs Europe’s debt crisis had worsened as costs to protect Greek debt from default surged to a record.
Crude oil and gold will lead a rally in raw materials as production fails to keep pace with demand, Ray Eyles, chief executive officer of JPMorgan’s Asia commodity business, said in an interview last week. Oil supply will trail consumption in the second half as OPEC and other producers won’t increase output fast enough, the bank said in a report May 6.
Copper has lost 12 percent from its record $10,190 a metric ton on Feb. 15 on the London Metal Exchange. Goldman analysts recommended buying futures for June 2012 delivery. Brent has shed 12 percent from the highest level since 2008 on April 11.
The bank also favors zinc for delivery in December 2012, forecasting demand to outpace supply next year. The metal, used in production of galvanized steel, has dropped 12 percent this year, the biggest loser among the six major LME base metals.
“Although we do not see the zinc balance as tight as copper next year, given how low current prices are relative to industry economics, we believe that zinc price risk is substantially skewed to the upside,” the report said.
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