Two key economic barometers are on the rise. Oil reached an 18-month high around $87 a barrel early this week as copper regained the $8,000 a tonne level. The latest moves have nothing to do with fundamentals, says Commerzbank. Metals markets look well supplied and US crude stockpiles were more than 6% above the five-year average last week. Oil supplies are also on the up and “demand is still coming almost exclusively from emerging countries”.
Fadel Gheil of Oppenheimer & Co suggests an oil price of $60 a barrel would better reflect the fundamentals. The current run-up is being driven by “the same speculators that pushed prices up to $150 [in 2008]. They keep pushing the envelope until they reach a point at which they all jump”. That point may come later this year as the recovery in the developed world disappoints. Note that optimism about the global recovery is now the main impetus behind raw materials. That’s clear from the fact that the correlation between oil and the S&P 500 has never been higher, as Commerzbank’s Eugen Weinberg points out.
Economic growth “is still reliant on an artificial monetary and fiscal fertiliser”, says Edward Hadas on Breakingviews. But bank credit continues to shrink and consumers are deleveraging. With the developed world economy fragile and lacklustre, further gains in commodities will require accelerating growth in emerging markets, says Capital Economics. Yet China is set to apply the brakes, which implies that the risks are rising, says Deutsche Bank. It sees copper averaging $6,000 and $6,600 in the third and fourth quarters. Commerzbank expects oil to dip to $65.