PIMCO’s outlook for commodities over the next six to 12 months is essentially one of more price stability than we’ve seen over the recent period. We’ve had a large growth in supply across markets, which have re-priced to reflect that new supply-demand balance. We’re at a point of greater equilibrium.
Video: PIMCO’s Outlook for Commodities
PIMCO’s Nicholas Johnson explains our outlook for greater stability for most commodities—and upside potential for oil and gas.
Oil: Some Upside Ahead
We think that global demand growth for oil will be about 1.0–1.5 million barrels per day, and in order to meet that growth in demand, we need to see some growth in supply from the US. In PIMCO’s view, we will need to see oil move closer to $55 per barrel in order to get supply growth in the US and balance the market. So, we do see some upside in oil prices over the next nine to 12 months.
Gold: Facing Headwinds
We think that gold prices are likely to surprise on the downside from here, owing to the fact that the Fed is likely to start hiking rates over the next 12 months. Rates are likely to move higher and the dollar is likely to be stronger—both are generally headwinds to the price of gold.
Agricultural Commodities: Well Supplied
Our baseline is that agricultural commodities are likely to remain very well supplied. As a result, we don’t expect a lot of changes in prices from current levels. Of course, this will depend largely on weather, which has a significant influence on agricultural price movements.
Base Metals: Sensitivity to China
Base metals are very sensitive to what happens in China. That said, we don’t have a strong view relative to current price levels and so we are very much neutral the base metal sector.
Natural Gas: Positive Expectations
Natural gas is probably the commodities market where our outlook is the most positive over the next 12 months. We’ve finally seen production growth slow versus the peaks that we saw in the winter. At the same time, we’re starting to see demand pick up from liquefied natural gas (LNG) exports in the US. As a result, we ultimately expect natural gas prices to go higher.
For more on this topic: PIMCO’s experts discuss why Commodities Remain a Valuable Portfolio Allocation.
Nicholas Johnson is a portfolio manager focusing on commodities and multi-asset portfolios in the Newport Beach office.
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