Commodities | May 25 2006
By Chris Shaw (Tokyo)
With many investors in commodities rushing to the exits, prices have corrected and so taken some of the speculative froth out of markets such as gold and copper. The impact on oil prices has been less pronounced, as in the view of Barclays Capital the fundamentals support not only the current price but a test of higher prices in coming months.
One reason prices are likely to test new highs in the analysts’ view is the upcoming hurricane season in the Atlantic Ocean, where the National Oceanic and Atmospheric Administration has projected there is an 80% chance of above normal activity this year. In Barclays’ view this offers risk to the upside, particularly as US crude oil output is still yet to fully recover from last year’s hurricanes.
Additionally, it suggests the Iran nuclear issue remains as a source of upside potential for oil prices as the chance of any resolution being unilateral rather than multilateral increases.
While oil inventories in the US are currently lower than normal thanks to lower imports and ongoing strong demand, in Barclays’ view the figures present little cause for alarm.
Barclays are forecasting an average oil price this year of US$68/bbl for West Texas Intermediate, its outlook suggesting prices are likely to remain flat until the fourth quarter, when a rise above US$70/bbl is considered likely.
It expects the average price to fall slightly in coming years, as it is forecasting an average price in 2007 of US$64.70/bbl, in 2008 of US$62.60/bbl and in 2009 of US$61/bbl.