It's time again for Goldman's commodity permabulls to rise again.
Four months after the bank's strategists declared the start of a new commodity supercycle, a declaration which quickly fizzled as oil slumped amid renewed covid shutdown fears and a bursting of the reflation trade, Goldman published a note overnight in which it goes "balls to the wall" long commodities, predicting that over the next six months we will see "the biggest jump in oil demand ever – a 5.2 mb/d rise over the next 6m, 50% larger than the next largest increase over that time frame since 2000 and almost twice as large as the biggest 6m supply rise since 2000."
Here is the gist of Goldman's argument:
At the center of this recent period of consolidation in commodity prices was a plateau in activity levels due to renewed lockdowns in Europe, the shoulder months in commodity demand, and a macro headwind from a stronger dollar driven by rising rates. Now, all three of these factors are in the process of reversing.
Activity levels as measured by mobility have resumed their upward trajectory, particularly with the vaccination rollout in Europe now gaining momentum.
Alongside this resumption in rising activity levels is the seasonal upswing in transportation, manufacturing and construction that begins now and accelerates into June. It is important to remember that commodity markets are driven by volume, or the level of demand. Simply put, when the volume of demand exceeds the volume of supply, a scarcity premium is created which cannot be priced in ex ante.
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The magnitude of the coming change in the volume of...