Strong forecast for oil, copper

MULTINATIONAL investment bank Goldman Sachs is taking a bullish view of where the price of both oil and copper are headed.
Strong forecast for oil, copper Strong forecast for oil, copper Strong forecast for oil, copper Strong forecast for oil, copper Strong forecast for oil, copper

Jeff Currie

Michael McCrae

Writing for Kitco News, Michael McCrae reports that Goldman's head of commodities research, Jeff Currie, says that oil could reach $90 a barrel and copper could rise to between $11,000 to $12,000 a tonne.
This view was expressed in an interview earlier this week.
Copper prices have risen on decades-low supplies and extreme shortages, according to a report from Reuters. Three-month copper on the London Metal Exchange rose 1.5% to $10,351 a tonne. U.S. Brent Crude prices have more than doubled in the past year and traded above $85 a barrel at midweek.
Metals are in a supercycle due to a confluence of events after the pandemic, and the resource sector cannot keep up due to years of under investment.
"Poor returns in the old economy saw capital redirected away from the old economy and towards the new economy, basically taking from the Exxons of the world and giving to the Netflixs of the world," said Currie.
With years of poor returns in the resource and energy space, investors are not investing anytime soon. Adding more oil supply from the US is problematic, since oil producers haven't been investing, and getting them to invest is going to require a much higher oil price.
"Today the focus is on return on equity. The focus here is not on the dollar price of oil, but where [the energy investor's] stock price is and the access to capital," notes Currie.
Currie adds that environmental social governance hurdles create an even higher hurdle rate for getting oil producers to invest.
"There is a cost of capital associated with de-carbonisation and we're going to find out what that cost is," said Currie.
High oil prices cascade into refining. Aluminium, which has high energy needs, has risen dramatically. Zinc has also run up due to European smelters having to close.
"When the wind quit blowing, the market had to replace that wind power generation with natural gas, and there was no gas, which created a massive price spike," said Currie.
"These transient events are going to have higher probability and more frequent in nature. There is a persistency of transitory events."
Currie defines a supercycle as bottom up and driven by sweeping, structural policies, citing China's admission to the World Trade Organisation in the 2000s or President Lyndon Johnson's War On Poverty in the '70s.
"Every commodity supercycle is driven by low-income groups, as well as every bout of inflation," said Currie. "Inflation and commodity bull markets are directly tied to populist policies, and I can't find an exception to that."
Meanwhile, nickel was the biggest mover at midweek after Vale cut full-year nickel guidance yesterday. Vale blamed the strike at Sudbury and the suspension of its Onca Puma mine for the cut.
Nickel rose 4.6% to $21,046 per tonne, the highest since 2014.
"Nickel was the only metal to post a positive order book reading on our nano data yesterday. Up for a fourth day with the transaction aggression reading also positive. A market which was originally in covering mode is now beginning to see a long establish," financial services firm Marex's Al Munro said.
At midweek, lead and zinc rose by more than 2%, aluminium fell and copper was flat.
The International Copper Study Group said global mine production increased by 3.6% over the first seven months of the year, refined production was up 2.6% and usage was up 3.3%.
The preliminary global refined copper balance for the first seven months of the year indicated an apparent deficit of about 138,000 tonnes.
In precious metals, silver rose over $24 an ounce, while gold increased to $1785/oz.