Global Forecasts Report 2016-2020: Commodities Forecasts

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The Economist Intelligence Unit has produced its first global forecast since the Brexit vote. Please find below, their forecasts for commodities until 2020.

Oil prices have fallen back slightly in the wake of the Brexit vote

The rally in oil prices, which saw dated Brent Blend, the global benchmark, doubling from a 13-year low of US$26/barrel in January to over US$52/b on June 8th, has stalled. A succession of bearish developments has prompted a wave of profit-taking and a readjustment of market expectations about the near-term outlook for prices. The contango (a situation where the spot price is lower than the future price) on oil futures prices has widened again, suggesting that market participants now expect a slower rebalancing of the oil market. The price of Brent fell by about 10% from its early June peak to around US$46/b in mid-July. As we expected, a key factor behind this reversal was the easing of supply disruptions, which enabled global supply to bounce back in June after a slowdown in May.

  • Canadian output is on track to recover after devastating wildfires in May.
  • Although militancy in the Niger Delta will persist, Nigerian production also increased in June.
  • Coupled with a further rise in Saudi Arabian and Iranian production, this led to record OPEC output in June.

Demandfor Oil Showing Signs of Weakness

Meanwhile, demand has suddenly shown signs of weakness, with gasoline consumption in the U.S. falling month on month in April. In line with these trends, the International Energy Agency (IEA) reported that OECD commercial inventories kept accumulating in May and that floating storage had reached its highest level since 2009.

(Click on image to enlarge)

In our interim global assumptions released on June 24th following the UK's vote to leave the EU, we lowered our 2016 oil price forecast from US$43/b to US$40/b.

Yet the current downward trend in prices has little to do with the Brexit vote, which, given the rapid recovery in global stock prices, seems to have had only a short-lived and marginal impact on market sentiment towards most risky assets. As such, although we maintain that prices will dip in the third quarter, before a more sustained recovery takes hold towards the end of the year, risks to our 2016 price forecast are to the upside.

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