Financial Times Editorial Comment: Oil back to normal/Oil prices rise as Goldman turns bullish

Financial Times Editorial Comment: Oil back to normal
Copyright The Financial Times Limited 2009
Published: June 1 2009 20:01 | Last updated: June 1 2009 20:01
http://www.ft.com/cms/s/0/077833b2-4ed5-11de-8c10-00144feabdc0.html


At $68 per barrel, oil has more than doubled in price since December. Gold is again touching $1,000 per ounce. The Cassandras of the economic commentariat warn that the monster of high energy prices will munch green shoots in the bud, but worry is misplaced. The current price movements signal not a repeat of last year’s anomalies, but a return to normality.

Commodities of all stripes have taken part in the latest rally. Aside from oil and gold, spot prices of other precious metals, of industrial metals such as copper and aluminium, and of agricultural commodities, have all gone up.

The dollar’s weakening has helped. Measured in euros, oil’s rise in the past month has been about 22 per cent rather than the 30 per cent increase in the dollar-quoted price. Beyond the accounting effect, reasons investors give for pulling out of dollars – the preponderance of worry shifting from deflation to inflation and a general return of risk appetite – are also reasons why commodities again look attractive to speculators.

But primarily, the commodity rally is just another sign that the extreme uncertainty unleashed by the financial crisis is loosening its chokehold on economic activity.

Commodities hit the bottom as collapsing trade bloodied the world’s industrial sectors. Once markets realised at the end of the first quarter that the world was not ending, commodity spot and futures prices climbed together. Since then, the five-year oil futures price has been hovering unperturbed around $75. The latest spot price increases therefore suggest that markets now expect recovery to take hold sooner.

Is this harmful? If prices continue to go up, they could trigger inflationary pressures. And significantly higher energy prices could be the final straw for many sectors already battered by the recession.

But the futures markets’ equanimity suggests we need not worry about immoderate further price rises: businesses can hedge against them. Many commodities also have supply sources that can stabilise long-term prices near today’s levels, at which, for example, oil production from shale, tar sands and coal-to-liquid technology become economically viable. Similarly, copper prices are again reaching $5,000 per tonne, where copper scrap recycling starts to thrive.

Commodity prices could, of course, rise significantly in a new bubble or after a real political commitment to reduce carbon emissions. Until that happens, we had better pour oil on the troubled waters of economic forecasting.




Oil prices rise as Goldman turns bullish - Four stage price rally expected
By Chris Flood
Copyright The Financial Times Limited 2009
Published: June 4 2009 11:50 | Last updated: June 4 2009 11:50
http://www.ft.com/cms/s/0/e6364494-50f2-11de-8922-00144feabdc0.html


Crude oil prices rose by more than $1 on Thursday, rebounding after a sharp fall in the previous session and leading a rally across commodity markets.

Base metals and agricultural commodities rose while gold stabilised after dropping in Wednesday’s session.

In oil markets, Nymex July West Texas Intermediate rose $1.03 to $67.15 a barrel while ICE July Brent added $1.27 at $67.15 a barrel.

Goldman Sachs, Wall Street’s largest commodities dealer, raised its oil price target for the end of 2009 to $85 a barrel, from a previous projection of $65 a barrel, and said prices could flirt with the $100 level by the end of 2010.

“The recent rally in WTI prices is likely to be but the first stage in the oil price rally that we expect will accompany a recovery in economic activity,” said Jeffrey Currie, commodity strategist at Goldman Sachs.

He added: “In all, we expect the rally we have just observed to be followed by three more stages, creating a four-stage rally in oil prices in 2009 and 2010.”

Goldman said that the second half of 2010 was likely to see a return to energy shortages as dwindling spare capacity among Opec producers would be unable to meet rising demand as non-Opec production growth would be restricted by limited investment in infrastructure.

The bank’s previous forecast was for oil prices to drop to $45 a barrel in the short-term, a projection that Goldman Sachs said it was now “omitting”.

Gold traded at $966.20 a troy ounce after ending trading in New York on Wednesday at $962.15, under pressure from a rise in the dollar which prompted profit taking.

Among the base metals, copper rose 1 per cent to $4,890 a tonne while aluminium added 1.5 per cent at $1,490 a tonne.




Oil hits fresh seven-month high above $70 - Investment flows support commodities rally
By Chris Flood
Copyright The Financial Times Limited 2009
Published: June 5 2009 10:54 | Last updated: June 5 2009 14:12
http://www.ft.com/cms/s/0/6a1f3e2c-51b2-11de-b986-00144feabdc0.html?nclick_check=1


Crude oil prices rose above the $70 a barrel mark on Friday, hitting a fresh seven-month high, propelled by better than expected economic indicators and a bullish view from Goldman Sachs, Wall Street’s largest commodities dealer.

US employers cut 345,000 jobs last month, the fewest since September and far less than Wall Street was expecting, according to a government report.

Nymex July West Texas Intermediate, the US benchmark, hit an intraday high of $70.32 a barrel, and later was trading 75 cents higher at $69.56 a barrel. ICE July Brent rose to an intraday high of $69.91 a barrel, its highest level since October.

Traders cited upbeat forecasts from Goldman Sachs as a factor supporting prices. The investment bank on Thursday revised up its year-end forecast for oil prices from $65 a barrel to $85 a barrel and also dropped its previous projection for a pullback in the next three months.

Jeffrey Currie, Goldman’s head of commodities research in London, said: “In all, we expect the rally we have just observed to be followed by three more stages, creating a four-stage rally in oil prices in 2009 and 2010.”

Goldman expects WTI to reach $95 a barrel by the end of next year.

Tom Pawlicki, of MF Global in New York, said that “unabated investment growth in commodities like crude oil will be fuelled further by such predictions.”

Gareth Lewis-Davies of Commerzbank added that oil prices prices had risen in the last few months largely as a consequence of a decline in investor risk aversion. “However, the upward move in prices is totally disproportionate to the reductions in inventories seen so far,” he said. “Only US gasoline inventory levels offer true price support as crude oil and other product inventories are currently at high levels.”

Oil traders were also keeping an eye on the US Gulf of Mexico weather with the arrival of the hurricane season and signs of a potential storm as soon as next week.

Base metals rose and gold and agricultural markets consolidated as commodity markets stayed on course for a strong finish to the week.

Gold traded at 979.20 a troy ounce, moving in a tight range between a low of 4976.20 and a high of $982.40 after ending trading in New York on Thursday at $979.10.

Traders said the US employment data should provide greater impetus to the dollar, which might have an impact on bullion trading.

“All the ingredients are in place for a bull run in gold and gold stocks,” said Rupert Robinson, chief executive of Schroders Private Bank. “The dollar is beginning to wobble, US Treasuries are under pressure on fears of downgrades and mounting deficits, and inflation is set to rise.”

Among the base metals, copper rose 0.6 per cent to $5,088 a tonne while aluminium extended its gains for a second session rising 2.9 per cent to $1,610.5, its highest level since early January, after jumping 5.4 per cent on Thursday.

David Barclay, of Standard Chartered, said aluminium prices were likely to rise further, reaching $1,600 a tonne by the fourth quarter, but any further gains would be limited by massive global inventories, estimated at 4.4m tonnes, or 40 days of consumption.