Goldman sees further rise in commodity returns

REUTERS - Goldman Sachs said it continues to expect further increases in commodity returns later this year and into 2012 as demand growth is still likely to be sufficient to tighten key markets.

“We maintain our overweight recommendation for commodities on a three-, six- and 12-month horizon and our 20 percent 12-month commodity returns forecast,” the investment bank said in a note to clients.

Goldman Sachs said it expects re-acceleration in global economic growth during the second half of this year as temporary drags from the Japanese earthquake and the April oil price spike diminish.

The bank said the Greek situation, ongoing tension over the tradeoff between inflation and growth in China and mixed data from several major economies will continue to drive near-term volatility in commodity markets.

The investment bank reiterated its long trading recommendations for Brent crude oil, UK natural gas, copper, zinc and soybeans.

The recent market correction provides a good opportunity for consumers to begin to hedge their forward oil exposure, the bank said.

“We recommend opening a long position in the ICE Brent December 2012 contract as we expect that the market will continue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand,” the bank added.

Goldman Sachs said refining margins will remain under pressure owing to the large increase in refining capacity in Asia.

The bank sees the spread between WTI and Brent narrowing from current levels and expects product cracks to weaken.

Analysts at Goldman recently raised their NYMEX gas price forecast slightly by $0.25/mmBtu to $4.13/mmBtu for the remainder of this year, while maintaining their $4.25/mmBtu forecast for 2012.

The bank said U.S. natural gas prices will probably be supported above the $6/mmBtu range from 2015 onwards, boosted by increases in generation demand due to retirement of more than 40 GW of coal-fired power plants.

Goldman Sachs also said it expects gold prices to continue to climb in 2011 given the current low level of U.S. real interest rates.

“We recommend near-dated consumer hedges in gold,” it added.

In agriculture, the bank continues to expect that soybean prices will outperform corn prices. Analysts reiterated their long position in November 2011 soybeans.

“We maintain that soybeans will likely achieve a deficit over the next year, leading to a rise in soybean prices from current levels,” Goldman Sachs said.