Take a shine to commodities

Take a shine to commodities

Financial markets are flush with the vast sums of cash unleashed by the United States' stimulus measures.

Emerging economies have big appetites for infrastructure development such as roads, rail and ports.

Put these two elements together and you have quite a bright outlook for commodity prices, analysts said.

Once the US negotiations over a budget deal are settled, and assuming a sensible deal is done to avoid the dreaded "fiscal cliff", Credit Suisse said, the outlook for many industrial commodity prices is likely to be driven by the pace of global growth.

OCBC Treasury Research said: "We remain cautiously optimistic in expectation of a sustained improvement in both global growth and sentiments amid an extended low-interest rate and highly liquid environment at least till 2015, and - barring a fiscal cliff - a recovering US economy in the year to come."

In this scenario, OCBC added, growth-related commodities such as copper and crude oil may see some hints of appreciation, while defensive commodities such as livestock and grains will likely take a back seat.

Oil

Oil prices have been relatively stagnant for the past two years.

Demand and supply remain fairly balanced and global oil consumption continues to hold steady, and analysts say it will likely be more of the same next year unless tensions flare up significantly in the major oil-producing nations of the Middle East.

Barclays analyst Suki Cooper believes this could very well happen, especially in Iran.

"We expect that the catalyst will arrive and that oil will average more than US$111 per barrel," she wrote in her 2013 outlook.

Other analysts have a more sanguine outlook, though they do not rule out an escalation of Middle East tensions.

Standard Chartered analysts, for example, said in their outlook report that they expect the prices of crude oil and oil products to remain close to current levels throughout next year unless there is a further increase in geopolitical tensions in the Middle East, or a weaker-than-expected recovery in the world economy.

Similarly at Credit Suisse, analysts are expecting the oil market to remain unexciting next year unless political winds shift suddenly.

"The price of Brent oil has, for the most part, moved sideways in a large range between US$105 and US$120 over the past two years," they wrote in an outlook report.

"Given that the swing producer Saudi Arabia is likely to continue to target this range, we expect it to persist over much of 2013."

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