Tuesday, May 24, 2011

"Commodities Gain as Goldman Advises Buying" (USO; GSP)

In the early 1980's Joe Granville got a couple market calls right and attracted such a following that his saying "Buy" or "Sell" would actually move the markets. Then he started predicting earthquakes.
GSP is iPath's GSCI ETN.
From FT Alphaville:
And now Goldman says the commodities correction is over [updated]
Having been proven right about their prediction of a rather substantial correction in commodities  earlier this month, Goldman Sachs is now out with a new view.
A bullish view.
As Jeffrey Currie and team wrote on Tuesday:

We remain structurally bullish commodities
Although we remain structurally bullish and have long argued the structural case for being long, timing does remain critical. This was evident in the recent market correction, which brought commodities down roughly 10% from their April highs. With prices now more in line with near-term fundamentals and price targets, we believe that the risk/reward once again favours being long commodities. Although the economy has likely shifted into a slower, but sustained, growth environment, we continue to expect that economic growth will likely be sufficient to tighten key supplyconstrained markets in 2H2011, leading to higher prices from current levels

Raising oil price targets on persistent impacts from MENA events
We expect that the ongoing loss of Libyan crude oil production and disappointing Non-OPEC production will continue to tighten the oil market to critical levels in early 2012, with rising industry cost pressures likely to be felt this year. We are now embedding in our forecasts that Libyan production losses will lead to the effective exhaustion of OPEC spare capacity by early 2012. This raises our year-end Brent crude oil price forecast to $120/bbl from $105/bbl, our 12-month forecast to $130/bbl from $107/bbl and our end-2012 forecast to $140/bbl from $120/bbl....MORE
Here's the headline story from Bloomberg:

Commodities rebounded from the biggest drop in almost two weeks after Goldman Sachs Group Inc. said it’s turning “more bullish” on raw materials, while stocks and U.S. index futures gained. German bonds fell.
Sugar jumped 2.7 percent, copper climbed 1.3 percent and oil advanced 1.2 percent at 7:10 a.m. in New York. The MSCI World (MXWO) Index rose 0.3 percent and futures on the Standard & Poor’s 500 Index increased 0.2 percent, after gaining as much as 0.5 percent. The euro strengthened 0.4 percent to $1.4096. Germany’s 10-year bund yield added three basis points.

Goldman Sachs suggested buying oil, copper and zinc, reversing last month’s call to sell commodities, while Morgan Stanley raised its forecast for Brent crude by 20 percent. The Greek government endorsed an asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid, while European Central Bank council member Christian Noyer said a restructuring of the country’s debt would be a “horror story.”
“The risk/reward once again favors being long commodities,” Jeffrey Currie, head of commodities research at Goldman Sachs in London, wrote in an e-mailed report today. “Economic growth will likely be sufficient to tighten key supply-constrained markets in the second half, leading to higher prices.”

The S&P GSCI index of 24 raw materials climbed 1.1 percent, after falling 1.7 percent yesterday. Oil gained $1.14 to $98.84 a barrel in New York. Goldman, which correctly advised investors to sell crude oil and copper last month before a price slump, raised its 12-month prediction for Brent crude to $130 a barrel from $107.... 
WTI is up 1.39 at 99.09
Brent is up 1.69 at 111.79
Ag futures are down fractionally.
Base metals are up 1 1/2% (Cu) to 2 1/2% (Zn)
The tallow/grease/lard complex is quiet.