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Weakness Awaits Rest Of 2014‏

Published 10/15/2014, 06:54 AM
Updated 05/14/2017, 06:45 AM

Key themes

A markedly stronger dollar and concerns about the outlook have weighed on demand for commodities over the past month. In our view, the dollar strengthening is not over yet as the US economy will continue to outperform the rest of the world, eventually leading to the Federal Reserve raising interest rates in 2015. Growth in China, Europe and Japan has weakened and probably will not turn before 2015.

Supplies in the oil market continue to mount as new investments in e.g. Brazil, Canada and US yield a higher output but more importantly because OPEC is currently producing at a high level - well above its present output target. That has raised speculation as to whether a price war in the oil market is imminent. The glut in the oil market has secured low energy prices for other commodity producers.

Oil

Downward pressure on the oil price will prevail for the rest of the year and into 2015 as the market awaits a reaction from OPEC. During 2015 we expect the Brent oil price to climb back up towards USD97/bbl, averaging USD94/bbl - revised down from USD98/bbl. Our forecasts are above forwards and we therefore recommend clients on the consumer side to hedge exposure at current low levels.

Metals

A stronger dollar, lower energy prices and weaker global growth will weigh on prices for the rest of the year. During 2015 higher global growth will support demand and give rise to gradual price increases - we have revised down our forecasts marginally. We recommend clients on the consumer side to use the current low prices to hedge exposure in 2015.

Grains

Mounting supplies are currently weighing heavily on grain prices. We have made slight downward revisions to our forecasts, reflecting further improvements in the outlook for supplies and dwindling odds of an El Niño arriving this year. Overall, our forecasts are close to forwards.

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