Commodities had been amongst hottest belongings in 2016, but pure tools such as oil and copper are liable to sharp, near-term losses within the absence of any actual growth within the markets, Barclays warns.
In a word dated Monday, the financial institution’s analysts mentioned commodities might slump as a lot as 25% from current levels, with oil poised to slip again under $ 30 a barrel and copper to the low $ four,000s a tonne.
“on condition that contemporary worth appreciation does no longer appear to be very well founded in making improvements to fundamentals and that upward traits could prove troublesome to sustain, the danger is rising that any setback will result in a rush for the exits that might again lead commodity prices to overshoot to the draw back,” the team led by using Kevin Norrish said.
“There are several causes to consider that a short-term turning point for investor flows could be close.”
West Texas Intermediate crude CLK6, +1.59% and Brent LCOM6, +1.18% kicked off the yr with important losses, but sentiment became in mid-February on hopes oil-producing countries would cooperate to stem the slide in costs. A weaker greenback and dovish comments from the Federal Reserve also helped oil prices stage a rebound.
Crude is at present up four.eight% 12 months-to-date at $ 38.eighty a barrel and Brent is up 8.1% at $ 40.31 a barrel, easily outpacing global fairness markets which are struggling to climb into certain for the year. Copper HGK6, -0.sixty eight% has jumped 2.8% to $ 2.19 a pound, or around $ 4,900 per tonne.
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however, the newfound love for commodities is just not in response to a protracted-term purchase-and-dangle strategy amongst traders, however as a substitute it’s far more about short-time period and opportunistic bets, the Barclays analysts mentioned. They mentioned that copper and oil are still confronted with a supply glut and excess inventories, but now also have to sort out “bullish extremes” in futures positioning. This makes first-quarter rallies not likely to be repeated within the second quarter, they stated.
“Commodities are among the few property that have generated a good return in Q1 and, as quarter-finish tactics, that can make buyers keener than they’d regularly be to shut out lengthy positions and lock in income,” the analysts stated.
“the chance for commodities is that traders seek to liquidate lengthy positions speedy and in unison, with probably extremely terrible penalties for costs,” they brought.
Barclays forecast crude oil prices to average $ 34 a barrel in the 2nd quarter and rebound to $ 45 within the fourth quarter.
Analysts at Citigroup were also forecasting a uneven oil market within the 2nd quarter, however struck a extra upbeat tone for the whole 12 months. In a word out Tuesday, they said they still see oil hiking above $ 50 by using the end of 2016 and that they’re sure on the outlook for oil producers.
“Our certain thesis on the big Oil staff displays a perception that the market still best reductions modest oil recovery — we predict c. $ forty/bbl is imbedded in valuations — and a view that the team can pressure self-assist positive aspects to boost profitability even in a low value environment,” the Citi analysts stated.
amongst favourite oil majors, Citi mentioned it likes the “self-help stories” reminiscent of whole SA FP, +2.06% TOT, +1.09% Chevron Corp. CVX, +zero.sixty eight% Statoil ASA STL, +2.22% Royal Dutch Shell PLC RDSB, +2.01% RDS.B, +zero.16% and Eni SpA ENI, +1.ninety eight%
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