OVERVIEW
COMMODITIES OUTLOOK
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The oil outlook has improved considerably over the last few months and much of the success in reducing the massive volatility and creating the stabilization of prices is down to OPEC+ being extremely effective in managing supply to balance the market. Our commodity analysts expect demand to continue to normalize in the base case outlook and the call on OPEC to progress steadily higher through 2021. While oil markets are stable the analysts look for gold to keep being used in portfolios as a hedge against fear and uncertainty as well as easing monetary policies. Copper, has a slightly less rosy future, as the upside seems behind us.
Oil: market has calmed
down considerably
Due to the coordinated and mostly compliant actions of OPEC+ members, and given our path of economic recovery, our analysts expect demand to continue to normalize in our base case outlook. This results in a very moderate increase in prices and they see Brent oil climbing steadily by the end of 2021.
Copper: most of the bullish factors
in the near term have faded
Recovery in China helped prices to rally and economic activity and copper demand has been exceptionally strong in China in 2Q20, especially in power infrastructure. Industrial production for June of $521bn reported by the World Bank beat the latest record of December 2019.
Commodity price normalisation
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This page contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale, at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of the Societe Generale group. This content has been prepared for use by institutional and professional investors and is not intended for retail investors. Investors should consider this report as only a single factor in making their investment decision.
© Societe Generale 2020
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By continuing to use our website, you are accepting our use of cookies. The cookies we use are "analytical" cookies. They allow us to recognise and count the number of visitors and to see how visitors move around the site when they are using it. To find out more or to change your cookie preferences, please refer to our cookies policy.
#contentwithimpact
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This page contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale, at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of the Societe Generale group. This content has been prepared for use by institutional and professional investors and is not intended for retail investors. Investors should consider this report as only a single factor in making their investment decision.
© Societe Generale 2020
Cookies Policy
Legal Information
Gold: ETF flows continue
but most who wanted gold already have it
Even before the COVID-19 outbreak, the environment was already advantageous for gold, with a perfect mix for a gold rally: low real interest rates, with the Fed cutting rates three times in 2019, threats to international trade from US-China tensions, and strong physical demand from central banks diversifying their reserves away from the US dollar.
Copper: most of the bullish factors
in the near term have faded
The outlook has improved considerably over the last few months and much of the success in reducing the massive volatility and creating the stabilization of prices is down to OPEC+ being extremely effective in managing supply to balance the market. Due to their coordinated and mostly compliant actions, and given our path of economic recovery, we expect demand to continue to normalize in our base case outlook and our call on OPEC to progress steadily higher through 2021. This results in a very moderate increase in prices and we see Brent oil climbing steadily toward $50/bbl by the end of 2021. We feel that if our base scenario (for economic growth of 5% GDP) plays out through 2021 and OPEC+ manages supply effectively, prices should trade in a fairly narrow range. $50/bbl is the OPEC+ target, which is Russia's current comfort level and is intended to keep US shale rigs at bay while stimulating demand growth. We expect the time spread (1m-12m) to gradually become less negative as inventories decline relative to the 5-year average. By 1Q21, we forecast that the time-spread will decline to -5% and to -1% to 2Q21.
Gold: ETF flows continue but most
who wanted gold already have it
Recovery in China helped prices to rally and economic activity and copper demand has been exceptionally strong in China in 2Q20, especially in power infrastructure. Industrial production for June of $521bn reported by the World Bank beat the latest record of December 2019. While the rebound was dazzling, most of the positive surprise is now behind us and this should not continue to significantly support copper prices at these high levels. Indeed, we expect the copper market to witness a surplus in the current year and for it to extend into 2021. This should see the end of the copper rally and bring back prices toward $5,700/t in 2021. In 2022, prices may rise again gradually to $6,200/t as the market switches back to deficit driven by the virus impact fully dissipating, copper demand for investments plans in infrastructure and renewables reaching the physical market and a lack of investments constraining mine supply output.
If Societe Generale's base scenario (for economic growth of 5% GDP) plays out through 2021 and OPEC+ manages supply effectively, prices should trade in a fairly narrow range. $50/bbl is the OPEC+ target, which is Russia's current comfort level and is intended to keep US shale rigs at bay while stimulating demand growth.
Our commodities analysts expect the time spread (1m-12m) to gradually become less negative as inventories decline relative to the 5-year average. Despite declining inventories, they do not forecast a return to backwardation in 2021, although they do forecast a considerable decline in volatility to normal levels.
While the rebound was dazzling, most of the positive surprise is now behind us and this should not continue to significantly support copper prices at these high levels. Indeed, our analysts expect the copper market to witness a surplus in the current year and for it to extend into 2021. This should see the end of the copper rally. In 2022, prices may rise again gradually as the market switches back to deficit driven by the virus impact fully dissipating, copper demand for investments plans in infrastructure and renewables reaching the physical market and a lack of investments constraining mine supply output.
Flaring US-China tensions have prompted our economists to be even more bullish. Accordingly, they recently upgraded their new base case scenario, and then gradually easing as risks dissipate. They are less constructive on gold as the pandemic dissipates, economies recover, and the overall situation returns to some sort of normalcy.
ACCEPT
Due to the coordinated and mostly compliant actions of OPEC+ members, and given our path of economic recovery, our analysts expect demand to continue to normalize in our base case outlook. This results in a very moderate increase in prices and they see Brent oil climbing steadily by the end of 2021.
If Societe Generale's base scenario (for economic growth of 5% GDP) plays out through 2021 and OPEC+ manages supply effectively, prices should trade in a fairly narrow range. $50/bbl is the OPEC+ target, which is Russia's current comfort level and is intended to keep US shale rigs at bay while stimulating demand growth.
Even before the COVID-19 outbreak, the environment was already advantageous for gold, with a perfect mix for a gold rally: low real interest rates, with the Fed cutting rates three times in 2019, threats to international trade from US-China tensions, and strong physical demand from central banks diversifying their reserves away from the US dollar.
Even before the COVID-19 outbreak, the environment was already advantageous for gold, with a perfect mix for a gold rally: low real interest rates, with the Fed cutting rates three times in 2019, threats to international trade from US-China tensions, and strong physical demand from central banks diversifying their reserves away from the US dollar.