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In a reversal of the trend in 2020, strategists at Capital Economics expect oil prices to rise this year and the prices of industrial metals and agriculturals to fall.

Key quotes

“Although virus-related restrictions will be in place across much of the world in the first half of the year, transport consumption appears likely to hold up better than in the first wave of restrictions in 2020. And we anticipate a surge in demand in the second half of the year as the rollout of vaccines enables economies to open up and travel and hospitality to revive. However, the potential for higher oil prices will be dampened by the huge amount of oil output capacity that is currently offline and which could quickly be brought back on stream at the right price.”

“Our forecasts assume a revival in US output and some slippage in OPEC+ compliance, but the oil market should still be in a small deficit. As a result, we expect the price of Brent to rise to $60 per barrel by end-2021.”

“The rally in industrial metals prices could continue in early 2021 given the momentum in China’s economy. However, we expect prices to start falling in the second half of the year on the back of weaker demand as the lagged effects of China’s earlier fiscal stimulus start to fade. What’s more, the lockdown-induced boom in China’s metals-intensive electronics exports should ease back as consumers in developed markets start to spend more on services.”

“Gold will continue to benefit from ultra-low US interest rates and a weaker US dollar. Indeed, we expect US real yields to nudge lower, as inflation expectations pick up, which is particularly positive for the price of gold. We see prices rising to $1,900 per ounce by end-year. That said, lower safe-haven demand, as global economic growth gathers pace, will act as a cap on prices. ETF holdings have already started to ease back.”

“We think that, for the most part, supply will recover next season leading to lower prices by end-2021. We are particularly negative on the outlook for the price of wheat given that our forecasts suggest a further rise in already-high stocks. That said, we are more positive on the price outlook for the more ‘luxury’ agricultural commodities, such as coffee and cocoa, which should see consumption pick up this year assuming that hospitality sectors re-open.”