Another Super Bull Cycle for Commodities?

SHANGHAI, Feb 9 - Jeff Currie, economist and head of global commodity research at Goldman Sachs Global Investment Research, recently said that all commodity markets are currently in short supply. He noted that in his 30-year career, he has never seen a shortage like the current one.

Commenting on the recent rally in oil prices, Currie said that demand has been much stronger than anyone had thought due to the insignificant impact of Omicron and that under-investment in supply had led to a tighter market.

The Bloomberg Commodity Spot Index, which tracks 23 energy, metals and crop futures, is said to have hit a record high earlier this year, while futures prices for many commodities, including oil, have seen strong spot premiums, indicating a tight supply market.

Currie explains that there are currently a very large number of commodity futures that are in an "backwardation structure". The backwardation structure means that futures prices for near-month contracts are higher than those for far-month contracts. Such a market structure indicates a scarcity of commodities, highlighting a shortage of supply that is the most severe since at least 1997. Specifically, 19 of the 28 commodities are in this structure.

In the energy market, strong demand for oil and gas has outstripped the capacity to supply. Global supply shortages have also boosted metal prices, particularly in the context of a push for clean energy as well as the consumption growth. In agriculture, crop yields were limited by bad weather, with drought dampening the outlook for soybean production across South America.

Goldman Sachs essentially reiterated its optimistic view on commodities from a month ago when it said that if Iran does not return to the market this year, oil prices could reach $95/barrel and commodities in general could enter a super cycle that could last 10 years. At the time it said that there was still a lot of money in the financial system and that investment positions in commodities were very low, setting the foundation for further rises in oil prices and other commodity prices.