As 2014 winds to a close, several analysts have already published their predictions for the coming year, with the vast majority seeing the U.S. take the lead in the global economic recovery. On the commodities front, 2014 has been yet another difficult year, as a strong U.S. dollar put downward pressure on commodity prices.
This year, the energy sector came into the spotlight, as crude oil prices fell more than 30% on increased supply levels and slow global demand. Many believe the crude story will likely continue into the new year. Below, we highlight what big banks are saying about energy in 2015, as well as their outlook for the overall commodity market in the New Year.
Goldman Sachs Bearish on Oil
In its 2015 outlook, analysts at Goldman Sachs included oil in its top 10 market themes for the new year. The bank believes oil prices will continue to fall; in Q1 2015 WTI is expected to trade around $75/bbl and Brent at $85/bbl. The primary reason for this outlook is based on rising supply from non-OPEC producers:
Goldman Sachs does, however, believe lower energy costs will have a positive impact on disposable income and growth, serving as a stimulus for consumers, but a stress for producers.
Analysts also noted three major themes that could put downward pressure on the commodity markets, the most important being an optimistic forecast on the dollar. Goldman believes the dollar will continue its bullish trend, strengthening against G10 currencies. Another concern is the troubling economic landscape in China, which is one of the largest commodity consumers in the world. Goldman expects a further fall in potential and actual growth. For emerging markets as a whole, analysts see improving imbalances in many of these economies; the commodities market, however, may pose several potential headwinds for this countries.
In metals, Goldman Sachs sees gold prices at $1,050 an ounce, while nickel, zinc, and aluminum are expected to outperform. Copper, however, will continue to lag as rising supply and sluggish demand in China will put downward pressure on the commodity.
Bank of America Is Neutral on Commodities
Bank of America painted a rather bleak picture for commodity markets in 2015, noting that the commodity “supercycle” has passed. One of the main drivers of the supercycle was China, and since the country has shifted its growth model away from investment and toward more personal consumption and services, analysts believe commodities will continue to lag in coming years, as they have over the past four years:
Bank of America stated that it remains neutral on commodities, since the asset class had not drifted upward following the path of better-than-expected growth as analyst had anticipated when the bank closed out its underweight position a few months ago. The bank does favor industrial commodities over gold, however.
World Bank Sees Weak Commodity Prices
In general, the World Bank estimates that commodity prices will remain weak throughout much of 2015, citing a slowdown in the euro area, a rising dollar, and increased supplies as primary reasons for the downward trend. In 2015, the World Bank expects oil prices to average $96/bbl; in the longer term, real prices are expected to fall to roughly $90/bbl in constant 2014 dollars. This is a significant decline from the estimated average of $102/bbl in 2014.
On the metals front, precious metals are expected to fall an additional 2% in 2015. In the long-run, analysts expect the downward trend to become more pronounced when the Federal Reserve eventually raises interest rates. In agriculture, fertilizer prices are slated to fall significantly in 2015; estimates are around -3.5%. Consequently, given the expected decline in energy and fertilizer prices (which are key inputs for food commodities), the World Bank sees a relief for the input price pressure that most food commodities have been subjected to during the past decade.
To see a full list of the World Bank’s forecasts, see its Commodity Markets Outlook.
The Bottom Line
As with 2014, analysts are not particularly optimistic on commodities for the coming year. But as always, these forecasts can be significantly altered by both internal and external shocks, including economic and/or geopolitical events, meaning investors will have to keep a close eye on how the global story will unfold in 2015.
Disclosure: No positions at time of writing.