‘Risk-On’ Returns To Commodity Markets

- DBLCI Commodity Returns: "Commodity index returns continue to be strongly positively correlated with the S&P500. This has led some investors to questions the diversification benefits of commodities. We find this is encouraging a new generation of commodity indices to emerge, namely the Risk Parity Commodity Index."
- Crude Oil: "Oil prices in 2007-08 seemed linked to shifts in the value of the dollar. Since 2009, the S&P500 appears to be the main driver. We are not convinced that recent dollar weakness and S&P strength can be relied upon to consistently drive oil prices upward over the next six months particularly in an environment where crude oil and product inventories have been slow to fall."
- Refined Products: "From a demand perspective, the US summer driving season has been stronger than expected. June-July gasoline demand is up 1.9% yoy. However, demand continues to be insufficient to eat through the high level of inventories."
- Natural Gas: "The continuing surge in shale gas production in the US raises the possibility that the US might export LNG rather than import it. A minimum spread of USD3.62/mmBtu on top of HH prices would likely be required to generate a positive netback on a sustained basis.
- Precious Metals: The positive correlation of gold prices to EUIRUSD is reestablishing
itself. Given our bearish outlook for the US dollar we believe this will trigger further gains in the gold price. We expect the liberalisation in China’s gold market will sustain the country’s rising market share of gold consumption relative to the rest of the world."
- Industrial Metals: "The industrial metals sector has dismissed fears of a slowdown in China and instead focused on the possibility that monetary authorities will do all that is needed to underpin economic recoveries. Copper rose to a three month high supported by China’s rural electrification program and production challenges in Chile."
- Agriculture: "Russia’s decision to ban wheat exports threatens hoarding and further price advances. However, we believe the relatively high level of US and global inventories in wheat and possibly upgrades to the Australian wheat harvest during the fourth quarter will limit price advances beyond October."

DeutscheBank Commodities Weekly 20100806

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