Short view: MENA unrest causes divergence in commodities sphere

In early February improving macro data spurred risk appetite and demand for commodities – the Brent oil price rose to the upper end of the USD90-100/bbl range and LME copper prices tested new record highs eventually breaking above USD10,00/t. But then tensions in the Middle East and North Africa (MENA) region escalated.

Energy: Geopolitics back on the agenda


The intensification of the instability in the Middle East and North Africa (MENA) region has led us to change our view on oil prices significantly. A MENA risk premium will remain on oil and whereas this may gradually be priced out provided tensions do not spread to other OPEC countries, the fundamentally justified oil price should also rise as growth is set to stay healthy.

Base metals: Substitution on the agenda as copper surges

We do not think the MENA unrest will derail the global recovery and toss the world economy into a new recession. As a result, we expect base metals to gradually regain recently lost ground – not least if Chinese buyers return from the Lunar New Year holiday with appetite for raw materials. However, substitution could be a new theme should copper continue to outpace aluminium. We keep our metals forecast unchanged.

Grains: Watch China - and the weather

Agricultural markets remain in a state of heightened uncertainty following the devastating effects of the La Nina weather phenomena on crops. For now, markets are awaiting the March prospective plantings report. We keep our grains forecast unchanged

February key points

  • Commodities saw a strong start to February as improving economic data spurred risk appetite. However, unrest in Egypt and Libya brought geopolitics back on the agenda, leading oil prices to soar and base metals and grains to be sold off.
  • The MENA turmoil has led us to change our view on oil markedly as a geopolitical risk premium is likely to stay in pricing even if unrest does not spread further. We now estimate that Brent oil will average USD111 per barrel in 2011 (prev. 94) and USD112 in 2012 (prev. 101).
  • We remain confident that global growth will stay strong, thus fuelling demand for metals. Clients on the consumer side may use the recent sell-off to position for higher prices at a later stage.
  • Adverse weather has driven prices of agricultural products up in recent months. A key event will be the US plantings report in March.