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Citi

Growth Expected Ahead

Key takeaways

  • Citi analysts expect oil prices to stay at-or-above the current US$78-80 per barrel mark, as non-OPEC supply growth may not be able to materially outpace demand growth and rebuild inventories until later in 2019-2020.
  • Citi maintains a neutral bullish price outlook on gold, forecasting COMEX gold price to average US$1350/oz in 2018.
  • Citi analysts expect iron ore prices to drift lower from the second half of 2018 onwards but remain highly volatile due to headwinds from a slowdown in global steel output growth and increasing steel scrap intake.

 

Higher energy prices have been a tailwind for both commodities returns and sentiment more broadly, given the relatively high weight of crude oil in underlying benchmark indexes.

 

While the base metals complex has lagged since January, Citi analysts forecast copper, zinc and aluminum could also play ‘catch-up’ in Q3 and provide a further boost for commodities returns in the short-term.

 

Oil: Prices likely to remain supported

Oil prices are rising due to sharply lower and declining OPEC production. With non-OPEC oil production able to meet global demand, market balances are being determined by OPEC supply which is falling due to both orchestrated supply cuts and unintentional supply declines.

 

Until OPEC returns oil to the market, prices are likely to stay at or above current US$78-80 per barrel as non-OPEC supply growth may not be able to materially outpace demand growth and rebuild inventories until later in 2019-2020.

 

Potential disruptions in Iran include: President Trump refusing a sanctions waiver, Joint Comprehensive Plan of Action (JCPOA) breakdown, US sanctions in Venezuela, and Saudi’s Houthi facility attack, could disrupt >500k barrels a day by the second half of 2018. These disruptions, combined with binding constraints on US infrastructure and production could drive oil back to US$80 per barrel.

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