Material Matters: Oil, Gold, Iron Ore & Coal

Commodities | Jul 11 2019

A glance through the latest expert views and predictions about commodities. Oil; gold; iron ore; and coal.

-Supply concerns ease for oil while demand issues increase
-Goldman Sachs finds gold stocks continue to offer value
-Iron ore price, ultimately, likely to depend on Chinese steel production
-Wilsons constructive on thermal coal for second half of 2019

 

By Eva Brocklehurst

Oil

Brent crude oil has recovered losses endured after the sell-off following the meeting of OPEC et al in early July and has moved above US$66/bbl. The seizure by Gibraltar's authorities of cargo loaded with Iranian crude, reportedly headed for Syria, has revived tensions with Iran.

Meanwhile, Citi notes a dovish stance appears to have been affirmed following the June US Fed meeting, supporting investor sentiment for risky assets and weakening the US dollar.

Further dovish policy from the European Central Bank is also considered likely as Christine Lagarde takes over from Mario Draghi.

Supply-side concerns have eased as OPEC has extended production cuts amid heightened geopolitical tensions. Instead, RBC Capital Markets points out concerns regarding demand have stepped up, amid fears of a trade war and persistently weak refining margins.

Given the relatively weak macro backdrop, the broker prefers stocks that are leveraged towards bankable resources. The broker favours Santos ((STO)) for its growth opportunities. Carnarvon Petroleum ((CVN)) is also a favourite in the small-cap coverage.

For east coast gas leverage RBC Capital Markets assesses Comet Ridge ((COI)) is well-placed for a period of performance reversion compared with Cooper Energy ((COE)) and Beach Energy ((BPT)), with development of the Mahalo project accelerating.

The broker also likes Australis Oil ((ATS)), with its recently-introduced water-based drill solution proving successful and boding well for the remainder of its campaign at Quin.

Credit Suisse modestly increases forecasts for oil, raising 2019 Brent estimates to US$68/bbl. Modest tightening of balances in the second half of the year, combined with elevated geopolitical risk, is expected to support prices.

Forecasts for 2020 are lowered slightly, to US$65/bbl, as inventory is expected to build on robust non-OPEC growth, such as US shale, Brazil and deepwater start-ups in Norway/Guyana.

The main upside risks are supply disruptions because of hostilities between Iran and the US, a sharp reduction decline in Libya or a slowdown in US production growth. The main downside risks for oil are envisaged to be a further slowing in global demand growth, larger-than-expected US production growth and an absence of OPEC discipline.

Gold

Goldman Sachs increases 2019 gold price forecasts by 3% to US$1384/oz and the long-run price to US$1400/oz. The broker believes gold continues to offer significant diversification value. Goldman Sachs notes OceanaGold ((OGC)) has not participated in the sector rally because of underperformance at Haile, permit issues and production interruptions in the Philippines.

However, the broker suggests production growth from Haile and the extension to mine life in New Zealand are under-appreciated. Along with updates to gold price forecasts, Goldman Sachs upgrades the stock to Buy from Neutral.


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