Interview, Podcast
Why the ‘great de-stocking’ in oil and commodities could pave the way for future gains
- Current destocking incentives are viewed as unsustainable, with the system's ability to destock becoming constrained as inventories in oil remain historically low and copper and aluminum stocks face exhaustion or critical levels.
- A normalization of Chinese producer activity is projected for May and June 2023, while consumer balance sheet rebuilding is expected to take time, with producer and consumer dynamics anticipated to rebalance in the second half of the year amidst structurally weaker property demand.
- Oil demand is forecast to stay near 16 million barrels per day through spring 2023, with a significant market deficit expected in the summer and short positions likely to be unwound absent a huge recessionary surplus.
- Oil prices are projected to average $97 per barrel to close the 2023 year, potentially exceeding $100 per barrel by April 2024.
- European natural gas prices are expected to fluctuate between 70 euros per megawatt hour this summer and 95 euros per megawatt hour next winter as the market transitions to a significantly short position driven by the incomplete resolution of the energy crisis.
- Copper is anticipated to deliver significant long-term upside as a strategic commodity for energy and decarbonization, with a general expectation that price movements in one commodity will drive similar trends across the sector.
- Gold is forecast to reach $2050 from current high-1900s levels, though a breach above $2100 is conditional on investor belief that the Federal Reserve cannot reduce core inflation to 2%.
- The market currently prices in a 2% contraction in global demand, with Goldman Sachs assigning a 35% probability to a massive recession required to justify short positions, compared to a 55% market-assigned probability.
- Equity markets may struggle if a recession fails to materialize while interest rates remain significantly higher.
- A specific downside risk remains the potential for a viral outbreak or pandemic to disrupt oil and commodity demand.
- Russian oil production is expected to implement a 500,000 barrel per day cut in May, with OPEC+ projected to maintain existing cuts at its June 4th meeting; additional cuts in June are considered premature given that the impact of April cuts requires at least 60 days to materialize.
- OPEC is expected to exercise considerable market power due to the absence of investment in non-OPEC production, while OPEC+ aims to avoid a price war similar to those in 1986 or March 2020 due to Saudi Arabian discipline.