GOLDMAN SACHS: Here's Our Outlook For 14 Key Commodities

aluminium worker

Mounting controversy and alleged market manipulation has led Washington legislators to take a stronger look at major banks’ hold over commodities, with the Fed to possibly reevaluate regulation in the coming months.

But for investors, the case for holding commodities as a strategic move is still clear, according to Goldman Sachs commodity strategist Jeffrey Currie.

Currie tells clients three reasons why: “1) commodities as a hedge against hostile markets amid rising geopolitical risks, 2) significant roll-yields on the back of the tightness in Cushing which will likely support backwardation in energy markets into the autumn, and 3) an increasing decline in correlations across returns, both within commodity markets and against other asset classes, making the case for commodities investments as a way to diversify portfolio risk.”

WTI Crude Oil

12-month price forecast: $96.00/bbl

Current price: $105.00

'We assume that a significant share of shipping contracts on Seaway and the Permian lines are take-or-pay, such that flows through those pipeline can continue over the short-term keeping the WTI- Brent spread significantly below the $5.00/bbl required by pipeline economics.'

Source: Goldman Sachs, Bloomberg

Brent Crude Oil

12-month price forecast: $105.00/bbl

Current price: $108.00

'In the absence of the current production shortfalls, particularly should the Libyan labour disputes be resolved, we expect the market to be amply supplied in 2H2013 as significant non-OPEC supply is expected to come online and recent weak Chinese trade data signals that demand remains relatively weak even as global growth continues to recover.'

Source: Goldman Sachs, Bloomberg

RBOB Gasoline

12-month price forecast: $2.70/gal

Current price: $3.00/gal

'While the tightness in the RIN market remains an upside risk for RBOB prices, we expect the underlying gasoline fundamentals to remain under pressure in 2H13 and going into 2014 as OECD demand for gasoline continues to decline and we will likely need to see further refinery shutdowns in order to balance the market.'

Source: Goldman Sachs, Bloomberg

NYMEX Natural Gas

12-month price forecast: $4.25/mmBtu

Current price: $3.70/mmBtu

'We believe... that the better than expected production growth is likely to be temporary as it is driven by debottlenecking of infrastructure with rig counts remaining at low levels. As a result, we continue to expect that prices will need to increase to $4.25/mmBtu as we move into 2014 to bring back rigs and keep the market balanced given the ongoing structural demand growth.'

Source: Goldman Sachs, Bloomberg

LME aluminium

12-month price forecast: $2,100/mt

Current price: $1,848/mt

After dropping off at the end of June, 'Our base case is that further cuts are needed (so far this year global net output losses are in the order of 400-500kt vs. our assumption of 1.8mt), and that the outlook for aluminium is structurally bearish until these occur.'

Source: Goldman Sachs, Bloomberg

LME Copper

12-month price forecast: $6,600/mt

Current price: $7,029/mt

Thanks to tightening Chinese credit conditions and a collapse in Chinese construction completions, 'We see copper prices falling from current levels on a 6 to 12-mo horizon.'

Source: Goldman Sachs, Bloomberg

LME Zinc

12-month price forecast: $2,100/mt

Current price: $1,877/mt

'While it may be slightly too soon to get overly bullish, in the near term there is limited downside for zinc from current prices, and some moderate upside in 2013 on a recovery in sentiment towards Chinese and global demand growth over the next 12 months.'

Source: Goldman Sachs, Bloomberg


12-month price forecast: $1,175/toz

Current price: $1,331/toz

After a near term estimate above current estimate, Goldman expects gold prices will decline 'given our US economists' forecast for improving economic activity and a less accommodative monetary policy stance.' Their 2014 year-end forecast is $1,050/toz.

Source: Goldman Sachs, Bloomberg

COMEX Silver

12-month price forecast: $19.60/toz

Current price: $20.20/toz

'Over the long run, silver prices tend to track gold prices. Thus, our silver forecast reflects the historical ratio to gold.'

Source: Goldman Sachs, Bloomberg


12-month price forecast: 475 c/bu

Current price: 488 c/bu

'While summer corn supplies will likely remain low, corn inventories will rebound significantly this fall barring a major weather shock in the next month. We therefore reiterate our outlook for lower corn prices in 2H13.'

Source: Goldman Sachs, Bloomberg

CBOT Soybean

12-month price forecast: 1,100 c/bu

Current price: 1,282 c/bu

'The production recovery in South America and the growing prospect for a large rebound in US production this summer point to sharply lower soybean prices in 2H2013.'

Source: Goldman Sachs, Bloomberg

CBOT Wheat

12-month price forecast: 650 c/bu

Current price: 654 c/bu

'With the US and global wheat markets expected to remain in deficit in 2013/14, we expect that wheat prices will revert to trading at a large premium to corn prices in 2H2013.'

Source: Goldman Sachs, Bloomberg

CME Live Cattle

12-month price forecast: 128 c/lb

Current price: 126 c/lb

'While cattle prices have declined year to date on the combination of weak exports, competition from lower pork prices as well as resilient production, we expect prices to sustain their recent rebound given our expectation for declining beef supplies later this year.'

Source: Goldman Sachs, Bloomberg

CME Lean Hog

12-month price forecast: 87 c/lb

Current price: 86 c/lb

'Despite continued strong domestic demand (on high beef prices), the prospect for large hog supplies later this year as well as lower feed prices and continued weak exports lead us to forecast prices below the forward curve.'

Source: Goldman Sachs, Bloomberg

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