The world is entering a “long lasting bull market” for commodities, with even oil set to benefit as the newest underinvestment, dollar weak point, the big energy and government spending transition boost demand across the board, Goldman Sachs’ worldwide head of commodities research, Jeffrey Currie, said Dec. 8.
Speaking at an FT Live occasion, Currie said “every individual commodity market except for wheat is inside a deficit today” and highlighted the instance of oil, saying capital spending in the oil sector had fallen an unprecedented 40 % in the first one half of the season. He argued that even oil demand will be boosted by paying on the big energy change, due to the volume of oil consumed in the course of environmentally friendly power infrastructure projects.
Goldman Sachs features a “target” cost for oil of $65/b because of the end of 2021 and it is forecasting quick demand recovery, with worldwide demand set to reach 102.5 million b/d throughout 2022, he said, up from the International Energy Agency’s estimate that oil demand in 2019 was during 100.1 million b/d.
“It’s crucial to separate the vaccine, which is a tactical upside catalyst, from the pandemic itself, that is a structural catalyst to a longer-lasting bull market. As we look out to 2021 the vaccine produces that V shaped recovery… but looking beyond that we believe it is the start of a structural bull market not just in oil, but across the entire commodity complex,” Currie claimed.
In spite of a lowering of oil demand for business traveling, “we think the market’s going to be in deficit that is substantial throughout the conclusion of next year and beyond directly into 2022… You have structural under-investment in supply — we call it the payback of the old economic climate. It is not just oil, It’s metals, mining, all areas of the old economy has shortages within investment,” he said.
“The next theme, policy, sits at the core of the demand story. The main catalyst that the pandemic shifted is the fact that policy after 2008-9 was directed for market balance: whether it had been OPEC, the [US Federal Reserve,] the Chinese five-year plan, all was around financial balance. Now, every one of the policy is actually around social need, and social need creates a redistribution of wealth towards lower-income, income constrained households that utilize a great deal more… Need is pretty strong across the board.”
“We call it revving commodity demand — redistributional policies, environmental policies… after which there is the versatility in source chains” in the form of stockpiling of commodities by nations such as China, he said.
“Policy-driven need is going to generate a capex cycle that is actually even bigger than the BRICS in the 2000s, not as large as the’ 70s, though we’re talking about that kind of a bull market of commodities,” Currie said.
“It’s exactly the same three legs all over the place — redistribution, Dark green, and then a little something to deal with the resilience of source chains — pretty much all [governments] are centered on that, whether it’s the US, China,” or Europe he claimed, arguing the policy side area of the brand new cycle would be kick started by a possible $500 million stimulus likely to be authorized by the US Congress in the upcoming days.
Currie went on to argue that a weakening US dollar was also providing “tailwinds” for the commodity segment, with the effect by now apparent in cost rises in oil as well as commodities like copper as well as iron ore, with iron ore prices hitting seven-year highs on Dec. 7. “This is not an issue we are forecasting for the future — we are within it correctly now,” he said.
On the topic of energy change, Currie played down several of the more optimistic forecasts by his fellow panelists on the speed of development in battery technology, along with the rise of electric powered vehicles, highlighting along with other things limits in lithium accessibility.
“Right now Apple and Tesla consume 50 % of the planet’s lithium market. These metals marketplaces cannot support scaling up these battery systems at the prices that are potentially anticipated here,” Currie stated, moving on to voice skepticism regarding the speed of improvement in battery technology.