I’m sure over the past few months you have noticed Goldman Sachs making much publicized calls on the direction of commodities, oil in particular.
First they called for a correction in the price of oil, recommending that clients take money out of the sector. And then immediately after that correction Goldman came out with a long-term bullish call indicating they see the oil market getting very tight early in 2012.
Must be nice to make directional calls on a weekly basis!
The man behind Goldman’s commodity team spoke with Bloomberg and provided some interesting comments.
- Goldman remains bullish but thought the market had got ahead of itself.
- Structurally bullish (which they are) means that looking out 6 to 12 months they think that demand is going to be outpacing supply drawing down inventories.
- Still cautious near term expecting volatility as the macro data is mixed and there is still a cloud over China.
- Expects that cloud over China to disappear as inflation comes off due to monetary policy at which point commodity markets should get very bullish.
- Thinks the worst of emerging market inflation is behind us.
- Thinks recent oil sell-off made sense as some of the concern over Middle East conflict especially in Saudi Arabia had eased.
- Once volatility comes out of oil expects upward trend to resume.
- Near term likes gold and agriculture.
- Thinks gold prices sovereign default risk which supports prices. Sees $1,600 this year and $1,700 next year.
- Agriculture already has physically tight markets (in contrast to oil which will be tight in 6 to 12 months). Any type of weather shock will cause big price moves as inventory is so low
- Copper has been de-stocked in China, which has led to lower prices as demand in the market is eased. Expects that to have basically finished. Thinks close to a near term bottom.
- On IEA trimming 2011 demand, thinks as soon as prices ease from $4 per gallon prices simply pop back up again