Forecasts for commodity prices from Barclays
The commodity market environment has deteriorated markedly in early 2016 and we are lowering our oil and copper forecasts as a result. Recent price declines for major commodities are now greater than in any crisis of the past 30 years and speculative positioning much more negative than it was even in the depths of the financial crisis. That suggests that although the price outlook is weaker than it was previously, the road ahead could be a very bumpy one.
Although we still expect higher oil prices over the second half of 2016, we see prices moving up from a lower base than we previously envisaged and on a much shallower gradient. We now expect Brent and WTI to both average $37/barrel in 2016, down from our previous forecasts of $60 and $56, respectively.
Winter finally decided to show up in January, and natural gas prices have responded accordingly. Cash prices have rallied more than 50% since their December nadir, showing the market got a bit carried away with its unseasonal December sell-off. The market is rallying on cold weather, but as traders turn their focus to the high end of March storage levels, another dip in prices is a possibility.
In copper, we have revised our forecast down to an annual average of $4,350/t from $5,625/t previously. In our view, prices are likely to remain around spot and slightly strengthen in Q2, but thereafter decline in anticipation of a large Q4 surplus, similar to price behaviour last year.
Gold prices rallied amid the global risk asset sell-off, triggered by China volatility. However, late last week, there were signs of stabilisation in China, and the payroll number suggests a still solid US economy. We keep our $1054/oz average price forecast for 2016.
