Global head of commodities research at Goldman, Jeff Currie, stated his position on the future of the sector this week, citing two big factors why commodities would continue to go up.
One was that while historically stimulus benefited high-income households, current stimulus benefits low-income, who spend a lot more on commodities.
The second factor was the future prospects of oil. Because oil will be less in demand in the future, companies won’t be investing in bringing more oil to the market, even if oil prices rise.
Demand growth for oil, Currie said, would start to slow in 2024-2025 and after 2030 would decline. “What that means, the stimulus effect of all this green spending actually amplifies oil demand,” Curry posited, but, “If we know we have a blueprint for energy transition in the U.S., Europe and China, and the clock is ticking on oil, are you going to invest in long-lived oil production? The answer is ‘no.’ So the only thing you’re going to invest in is short cycle production in the U.S., Middle East and Russia. Everything else is too risky to make investments. The hurdle rate to get investment in this sector is substantially higher than what it was historically.”
Currie saw some potential inflation risk accompanying the demand-pull factors that are driving commodity prices. Commodities prices increases, he said, are in part due to the hedging of bond-holding portfolio managers dealing with inflation possibly creeping up into the 2% range.
By Sid Douglas