Commodity Roundup: UBS’s Marcelli sees higher prices ahead despite demand concerns

Concerns about slowing Chinese demand have weighed on commodity prices recently. However, UBS’s chief investment officer still sees commodity prices rising in the future due to strong demand and limited supply, and expects the asset class to offer strong diversification benefits to a portfolio. Context.

“We recommend investors consider opportunities in commodities to enhance and diversify portfolio returns,” Solita Marsili, chief investment officer for the Americas at UBS Global Wealth Management, said in a note.

An active strategy in dealing with commodities in general can also help investors navigate the markets effectively with the potential to improve risk-adjusted returns, Marsili added.

On oil, the firm says the latest available data showed Russian crude exports in the first two-and-a-half weeks of July fell to their lowest in several years. While Russian domestic oil demand typically increases during the summer, the drop appears to be more than just a seasonal pattern. The investment bank also notes that lower OPEC+ crude exports should help tighten the oil market, maintaining its year-end Brent target of $87 per barrel.

Moving on to gold, UBS says the yellow metal has more room to rise, with gold expected to hit $2,600 an ounce by the end of the year and $2,700 an ounce by mid-2025. The bank added that allocating gold within an investment portfolio can be an attractive diversification and hedge for investors.

Spot gold (HAUUSD: Korean currency) rose +0.42% to $2,373.69 per ounce by 6 a.m. ET.

Meanwhile, BMI (a unit of Fitch Solutions) expects the global diesel price to average $96 per barrel in 2024, compared to $115 per barrel in its previous quarterly forecast, and expects diesel prices to decline in the third quarter before rising in the fourth quarter when winter arrives.

However, the brokerage remains bearish on prices for 2024, arguing that gradual seasonal demand growth will not be enough to ease the global supply glut, and that the outlook is supported by the ongoing slowdown in the world’s largest European diesel market and structural weakness in U.S. consumption.

“Weak diesel prices in three key trading regions in the first half of 2024 suggest that the market remains oversupplied. There is limited prospect of a strong recovery in diesel prices in Q3 and Q4 2024 as oversupply will continue to pressure prices unless refiners respond by cutting production.”

China and India will remain the main drivers behind regional diesel supply growth in 2024, supported by refining capacity additions, the report added.

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