At this point we refuse to even recall whether Goldman is long or short oil. Probably so does Goldman, whose Brent recos have become the same laughing stock as Tom Stolper's EURUSD "strategic" price targets in 2010. Yet Jeffrey Currie has found a new way of dealing with appearing idiosyncratically idiotic. Instead of focusing on any one product, the firm has just upgraded (or rather, maintained its buy) the entire commodity space wholesale: "Progress in dealing with the Greek budget crisis and better economic data have improved sentiment around cyclical assets in recent days. We continue to expect further increases in commodity returns later this year and into 2012. We maintain our overweight recommendation for commodities on a 3-, 6- and 12-month horizon and our 20% 12-month commodity returns forecast." Um, yeah, this comes less than two weeks since the last flip flopping on the matter: "The International Energy Agency announced today that its member countries have agreed to release 60 million barrels of oil from their emergency stocks over a period of 30 days. The IEA has coordinated this release, only the third in its history, in response to the ongoing loss of Libyan light sweet crude oil production and the impact that the resulting higher crude oil prices are having on the world economy. We estimate that a 60 million barrel release by the end of July has the potential to reduce our 3-month Brent crude oil price target by $10-12/bbl, to $105-107/bbl. 125/bbl." Way to preserve street cred there Jeffrey. Of course, the aforementioned flipflopping does not prevent Goldman from mocking the IEA's ridiculous SPR release decision, as well as reiterating its upside expectation in the metals space, with an emphasis on gold, copper and zinc. As a reminder, if Jeffrey says "buy", run, Forest, run.
From the latest report (not to be confused with the one two weeks from now which will be the same with a minus sign in front of every other word):
Progress in dealing with the Greek budget crisis as well as nascent signs that at least some of the recent economic disappointments owed to temporary disruptions from the Japanese earthquake have substantially improved sentiment around cyclical assets in recent days, pushing key metals in particular above recent ranges. In addition, drags from commodity-specific events have also eased, with the IEA’s unexpected announcement of a coordinated
60 million barrel release of emergency stockpiles to compensate for lost Libyan supplies in particular likely to be less impactful than first appears.
Although we believe that the Greek situation, ongoing tension between the inflation/growth tradeoff in China, and still mixed economic data from several key economies will continue to drive near-term volatility in the commodity markets, we maintain that commodity prices and returns will rise further later this year and into 2012. Underlying this view are Goldman Sachs economists’ expectations for reacceleration in global economic growth during 2H2011 as temporary drags on growth stemming from the Japanese earthquake and the April oil price spike diminish. On net, while growth is expected to slow in 2011 from 2010’s above-trend pace, it is expected to remain substantially positive and generally supportive of rising commodity demand. We expect this demand growth will be sufficient to tighten key commodity markets over the next six to twelve months, particularly for those markets where supply constraints will become binding even on slower economic growth. Accordingly, we reiterate our long trading recommendations for Brent crude oil, UK natural gas, copper, zinc and soybeans.
Although our forecasts suggest upside is greatest on a twelve-month horizon, we note that further improvement in economic data may be sufficient to pull forward substantially positive commodity returns, particularly for those cyclical commodities that are more anticipatory in nature, such as the metals. As a result, we maintain our overweight recommendation for commodities on a 3-, 6- and 12-month horizon and our 20% 12-month total returns forecast for the S&P GSCI® Enhanced Commodity Index.
Oil: IEA release less impactful than first appears
For oil, we emphasize that the impact of the emergency stock release on the global balance is likely to be relatively short-lived and more muted than first seems. As details of the release have begun to be made available, it is now clear that only about two-thirds of the release of 60 million barrels will be through a sale from government-controlled inventories that would otherwise be unavailable to the market. Further, the impact of the release is likely to be substantially more muted as time goes on. On net, while this oil will moderately increase near-term supply availability, it does little to alter inventory levels and the trajectory of crude oil prices over the medium-term. We continue to expect that oil demand growth fueled by moderate economic growth expectations will be sufficient to draw down crude oil inventories and OPEC spare capacity by early next year, leading to considerable oil price upside on a 6- to 12-month horizon. Accordingly, we reiterate our long position in December 2012 Brent crude oil.’
Metals: Upside may be pulled forward
For metals, we also anticipate further upside, especially for the more supply-constrained metals. For copper in particular, we maintain that the winding down of destocking will lead to a stronger Chinese pull on global supply in 2H2011, tightening the market and generating further price upside later this year. We also maintain that zinc price risk is skewed to the upside given our view of developing deficits in 2012, and believe that aluminum prices will continue to be buttressed by our view of higher oil prices over the next year. Given these views, we continue to recommend long positions in June 2012 LME copper and December 2012 LME zinc. We also maintain a long recommendation for December 2011 COMEX gold given our expectations for continued low real rates and moderate increases in monetary buying that will likely remain supportive of the metal in coming months.
Agriculture: We still expect soybeans to outperform
For agriculture, we continue to expect that soybean prices will outperform corn prices and reiterate our long position in November 2011 soybeans. Recent data points reinforce our conviction in these views. Although higher inventories reported across the major crops have eased concerns about the tightness of old and new crop balances, a higher-thanexpected rise in US corn and cotton acreage has resulted in an even larger-than-expected decline in soybean acreage. As a result, we maintain that soybeans will likely achieve a deficit over the next year, leading to a rise in soybean prices from current levels, albeit a smaller rise than we had expected previously given downward revisions to our corn and wheat price forecasts following these reports.