Horizon Q4│2024 - Commodities
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Oil continues to move sideways despite a mixed outlook
Although crude oil has remained in a sideways trend since the beginning of the year, Q3 was characterised by falling prices. Fundamentally, this weakness is difficult to explain: According to the EIA, the oil market has been in a supply deficit since April, US inventories have fallen almost monotonically in recent months and there have recently been major production shortfalls in Libya due to political unrest. However, the outlook for the coming months is challenging. Demand in the West is likely to weaken seasonally, while the Chinese economy continues to disappoint. At the same time, OPEC+ has postponed but not cancelled its planned production increases. However, with investors already pessimistic despite the solid starting position, much already seems to be priced in. Due to the high free capacities and rising non-OPEC production, the upside potential nevertheless remains limited. The sideways trend since the beginning of the year is therefore likely to continue.
Fundamental starting position for oil good, but outlook mixed
Global demand surplus (in millions of barrels per day) compared to the price of Brent crude (in USD per barrel)
Gold at an all-time high, but there is still room for rising prices
Like in Q1 and Q2, gold also reached new all-time highs in the third quarter. However, the drivers of the rally have reversed compared to the first half of the year – from physical to financial demand. Previously, emerging-market central banks had pushed ahead with the de-dollarisation of their currency reserves and Chinese private investors had increasingly invested in gold instead of real estate. At the same time, gold ETFs recorded outflows totalling 4.5m ounces in H1. Most recently, however, physical purchases slowed significantly in the wake of the sharp rise in the price of gold, while investor interest in the safe haven suddenly increased again in the West in view of finally falling key interest rates. Despite the all-time high, the rally in gold can continue thanks to the change in drivers. In an environment of falling interest rates, rising government debt, a weaker US dollar, high uncertainty in the run-up to the US elections and geopolitical escalations in the Middle East, there are many good reasons to invest in gold.
Further inflows into gold ETFs should provide a tailwind
Gold price in US dollars versus global gold ETF holdings in million ounces
Metals await rising activity in the manufacturing sector
In recent months, industrial metals have not been spared from the continued weakening activity in the manufacturing sector, particularly in China. Despite tight supply, industrial metals are likely to continue to struggle to appreciate sustainably without impetus from the manufacturing sector. However, there are signs that demand is recovering, particularly in the Far East: local premiums are rising again and exports and high inventories are falling. Although industrial metals are already pricing in a negative outlook, the timing of the recovery remains uncertain.
Metals are likely to appreciate once manufacturing activity picks up
LME Industrial Metals Index versus the Global Manufacturing Purchasing Manag-ers' Index
Author
Ludwig Kemper
Ludwig Kemper has been working as a strategist since 2019 and as a portfolio manager since 2021 at Berenberg’s Multi Asset unit. His responsibilities include the generation of investment ideas and the preparation of analyses to support investment decisions. Ludwig focuses on the commodities sector and derivatives markets. Previously, he completed a dual study programme at Berenberg in cooperation with the Hamburg School of Business Administration. In his rotations, he worked in investment banking, equity research and asset management. He received his Bachelor's degree as valedictorian of his class. Ludwig is a CFA charterholder.
Ludwig Kemper
Multi Asset Strategy & Research
