Analysts at investment bank Goldman Sachs believe the rally in commodity prices is premature. On Monday 7 March Brent crude moved above $40 per barrel for the first time in 2016 and iron ore posted its biggest one-day gain on record, up 19% to $63.74.
Evidence of oil supply curtailments in the US (see graphic) and other non-OPEC producers, fears about US economic growth undermining the dollar and hopes for Chinese stimulus have helped support the current rally but Goldman says these dynamics are ‘simply not sustainable’.
It comments: ‘Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating as it did last spring.’
Goldman also reckons the rebound in metals prices is unwarranted. ‘Despite a continued deterioration in Chinese manufacturing data in the face of recent easing measures, copper and metal prices have also surged to fresh highs.
‘Again we believe these rallies are also not supported by the broader financial environment in China. China is credit constrained and likely to use limited stimulus to promote consumption over investment through fiscal policy.’