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ANALYSIS

Oil ‘to average $61 per barrel in 2017’

DUBAI, December 15, 2016

Brent crude oil price will average to $61 per barrel (/bbl), helped by the recent Opec deal, said a report from Bank of America Merrill Lynch (BofAML).

“Our baseline forecast for commodity prices includes an average Brent crude oil price of $61/bbl, an average US natural gas price of $3.50/MMBtu, a rally in copper prices to average $6000 per tonne in the second quarter, and a continued run up in zinc and nickel prices,” added BofAML’s  Commodity Strategist: 2017 Commodity Outlook.

Average US natural gas price will be $3.50/MMBtu, a rally in copper prices to average $6000/t in the second quarter, and a continued run up in zinc and nickel prices. Still, gold prices could potentially drop further as the US dollar strengthens and US rates move higher.‎

“As such, we favour energy and industrial metals over precious metals. We also expect somewhat muted agricultural commodity prices on bumper crops and rising inventories. What could send commodities into a bear market?

“Surely, Opec compliance is a risk on the supply side. Yet, the Fed may pose a greater problem for EMs. In our view, the most understated risk to commodity prices next year is a toxic combination of faster-than-expected US interest rate hikes, a much stronger USD, and a trade war with China,” the report said.

“While we retain a positive outlook on commodity beta over the next 6 months, we believe some of our commodity alpha strategies are worth considering. These liquid risk premia streams continue to provide uncorrelated returns and thus diversification for investors.

“This year, we favour adding dynamic signals to our classic momentum and contrarian alpha strategies. We also believe our quantitative fundamental strategies on crude oil, natural gas, and copper are worth considering, and we discuss these ideas extensively in this note,” BofAML said.

For a number of years, a strong US dollar, deflationary pressures, subdued global growth, and high inventory levels have kept a lid on commodity prices.

“As we look at 2017, some of these headwinds are fading. Global growth appears poised to strengthen as does inflation. Stocks across a number of commodity markets are declining and some curves are pushing into backwardation.

“In our view, this combination of factors may create a positive backdrop for beta commodity returns next year. A goldilocks scenario for the commodities asset class would involve modestly stronger US and global growth, muted US wage pressures, a dovish Fed, and limited new trade restrictions.

“This tide could lift all boats, leading to a virtuous cycle of higher commodity prices, stronger EM growth, and rising global inflation. Should a reflationary world economy meet new US sanctions on Iran, commodities would likely outperform equities and bonds next year,” the BofAML report said. – TradeArabia News Service




Tags: oil price | Bank of America |

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