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Commodities Moving Higher

Following on the momentum of 2016, commodity prices are likely to move higher in 2017, as oversupply conditions are finally being balanced. Citi analysts believe that the oversupply in the commodity sector which was induced by high prices in this century’s first decade is finally being balanced. Cost structures have ended a period of record deflation and are starting to reflate. However risks to continued commodity positive performance include risks to global growth and uncertainties over US policy.

There are a few major commodities which Citi analysts are bearish on in 2017. Market forces for bulk commodities such as thermal and coking coal as well as iron ore remain inherently bearish. Soybean supply is likely to be boosted significantly by exceptional weather and crop conditions. Gold is also expected to be weighed down by a strong US dollar (USD) and higher interest rates.

Key takeaways

  • Oil prices are expected to trend higher on the back of the ongoing non-OPEC supply side re-balancing and OPEC production cut, against a backdrop of elevated political tensions
  • Citi analysts forecast Brent Crude Oil to average at 57 USD/barrel and WTI at 55 USD/barrel in 2017
  • While higher real interest rates and a stronger USD are likely to weigh on gold prices, it remains an important diversifier in investment portfolios

 

 

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