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Citi

A Generally Robust Year Anticipated for Commodities

  • Crude Oil: Energy, the worst-performing sector in 2020, is now the best-performing sector YTD (as of 6 April 2021). Price volatility is driven by financial flows, as underlying balances continue to tighten over 2021 and 2022, but this is unlikely to be a new supercycle. In 2021, Brent and WTI crude oil prices are expected to average US$69/bbl and US$66/bbl respectively, before dropping to US$59/bbl and US$55/bbl respectively in 2022. Iran remains the biggest wildcard for oil prices, with uncertainty over nuclear negotiations and sanctions relief, as well as higher near-term “leakage” to China and elsewhere. Meanwhile, geopolitical uncertainties loom over the oil market in the near future from other countries as well, even as OPEC+ manages supply month-to-month.

 

  • Gold: Precious metals had a strong year in 2020, particularly for gold and silver during Q2 and Q3, on the back of strong investment demand for “safe-haven” assets. Part of this safe haven demand has been unwinding alongside stronger growth expectations and resulting increases in US real interest rates. The March FOMC was dovish and signaled that the Federal Reserve could be patient with policy rates at the zero lower bound and allow inflation to overshoot in the short-run. This could ease gold selling pressure in Q2 but it seems unlikely that gold could re-enter a bull market. Citi analysts expect nominal gold prices to have peaked and could trend lower in 2021/2022. Gold prices are now expected to average US$1,720/oz in 2021 and US$1,570/oz in 2022.
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  • Bulks and metals: Citi analysts are calling for a copper “supercycle” based on expectations of strong producer margins over the next five years and prices could average US$9,375/MT in 2021. Solid copper demand growth could be driven by copper intensive decarbonization related investments, including electrification of vehicles and the build out of the renewable energy grid. Citi analysts are also positive on Australian hard coking coal, expecting prices to reach US$135/MT by mid-2021 and US$150/MT by year-end, thanks to ex-Chinese mills’ continued shift of purchases away from North American coal into Australian coal.

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