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

Concerns over sluggish Chinese demand have weighed on commodity prices lately. However, UBS’s Chief Investment Office continues to see higher commodity prices ahead due to solid demand and limited supply, and expects the asset class to deliver strong diversification benefits in a portfolio context.

“We recommend investors consider opportunities in the commodity space to enhance and diversify portfolio returns,” Solita Marcelli, Chief Investment Officer Americas, UBS Global Wealth Management said in a note.

In addition, an active strategy on broad commodities can also help investors navigate the markets effectively with potentially improved risk-adjusted returns, Marcelli added.

On oil, the brokerage says, the latest available data showed that Russian crude oil exports in the first two and half weeks of July fell to a multi-year low. While Russian domestic oil demand typically increases during the summer period, the drop appears larger than just the usual seasonal pattern. The investment bank further notes that, lower OPEC+ crude exports should help tighten the oil market; maintains year-end Brent target at $87 per barrel.

Turning to gold, UBS says, the yellow metal has more room to rally, as it expects gold to reach $2,600/oz by the end of the year and $2,700/oz by mid-2025. For investors, an allocation to gold within a portfolio can be an attractive diversifier and a hedge, it added.

Spot gold (XAUUSD:CUR) rose +0.42% to $2,373.69 an ounce by 6 am ET.

BMI (a unit of Fitch Solutions) meanwhile, projects the global diesel price for 2024 to average $96/bbl versus $115/bbl in its previous quarterly forecast, and anticipates diesel prices to head lower in Q3 before picking up in Q4 when winter sets in.

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

“Weakening diesel prices across three key trading regions in the first half of 2024 suggest the market remains oversupplied. There are limited prospects for a strong recovery in diesel prices in Q3 and Q4, 2024 as oversupply will continue to drag on prices unless refiners respond by cutting production.”

It further adds, China and India will remain key drivers behind regional diesel supply growth in 2024, supported by refining capacity additions.

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