That’s from Deutsche Bank today.
+1
We joke, we joke. A little. Deutsche had of course
already joined
the commodities-supercycle-is-dead chorus, and this note is not from
the commodities side but by Asia chief economists Taimur Baig and Jun
Ma.
Ma, who covers China, wrote an interesting and widely-read note
about China’s pollution constraints earlier this year. This one however has some key capitulation moments for some of us. For example:
It was tempting to look at China’s high-growth track
record (with little variation) as a sure-fire indication of robust
demand to persist for years to come. Emergence of India, which also saw
accelerating economic growth, was seen as another source of persistently
sizeable demand.
The underwhelming realities of those calls are just part of their
explanation for why the supercycle is over. The other reasons are:
structurally declining demand in OECD countries; the fruits of
investment in new production bringing prices lower; and the increase in
shale gas and oil production further adding to supply.
We won’t go into Deutsche’s whole rationale on energy and soft
commodities. Their energy production outlooks are rely on the standard
forward looking stuff (EIA forecasts and the like) which seem too early
to call, especially on shale. Baig and Ma are particularly optimistic on
Chinese shale gas, and say the potential for the country to beat its
targets should not be discounted. But there are
technology hurdles, not to mention a lack of usable water where it’s most needed.
On the other hand, there is evidence that oil demand is in structural
decline in the OECD, and perhaps even in emerging countries — at least
relative to GDP, in the latter group.
Anyway, here’s how Deutsche modeled some changes in gas and oil prices which they picked....
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