Goldman Sachs Expects Commodity Prices to Rally

Commodity demand will increase this year driven by interest rate cuts by central banks. This is according to Goldman Sachs, which sees potential commodity returns as high as 15%.

The investment bank’s analysts said in a note that lower interest rates will help the recovery of the manufacturing industries and stimulate consumer demand, while geopolitical risks continue.

The analysts named crude oil along with aluminum, copper, and gold, as some of the commodities whose prices could increase substantially this year thanks to a changed economic outlook.

“We find that US rate cuts in non-recessionary environments lead to higher commodity prices, with the biggest boost to metals (copper and gold in particular), followed by crude oil,” they wrote as quoted by Bloomberg.

“Importantly, the positive impact on prices tends to increase with time, as the growth impulse from looser financial conditions filters through.”

Perhaps the most crucial rate cut would be that expected from the U.S. Federal Reserve. For now, however, the Fed has signaled it was in no rush to start cutting rates. Even so, the central bank has planned three rate reductions this year.

A month ago, Goldman revised up its oil price forecast to $87 per barrel of Brent crude, from $85, citing the disruption of shipping in the Red Sea.

“OECD commercial stocks on land have drawn somewhat faster than expected as the redirection of flows away from the Red Sea has increased inventories on water,” analysts at the investment bank wrote in a note in late February.

More recently, Goldman suggested oil might top $100 per barrel this year as demand remains strong while additional supply from non-OPEC producers slows down.

The International Energy Agency also recently revised its forecast for oil demand growth upwards, citing the Red Sea situation that is creating additional demand for fuels.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

• Biden Charges Forward With Historic Auto Emission Crackdown
• Why Do We Still Have Investor-Owned Utilities?
• StanChart: Oil Demand Set for All-Time High in May