Citigroup hails outlook for commodities over rest of year

[SINGAPORE] Raw materials are set to round out 2017 with a bang, according to Citigroup Inc, which flagged prospects for further gains in oil and metals.

"Commodities have hit their stride since the start of the third quarter and are set for a sterling performance for the rest of 2017, particularly given stronger incentives for investment inflows," the bank said in a report on Wednesday.

Raw materials are headed for a gain in the quarter that ends next week, powered by gains in metals including aluminum. In the current quarter, China gave a strong push to metals and bulks on better-balanced growth, a stronger yuan, and environmental and safety policies, the bank said.

"Overall, we expect strong performance to continue through year-end, with the oil complex perhaps joining, if not replacing, the strong performance of the China-related commodities and the precious metals," Citigroup said.

"After a stormy summer, crude should end the year on a high."

The bank has been consistently bullish about commodities. In July 2016, it said it was positive as global growth chugs along and investors plow more cash into funds. Last month, the bank said markets from metals to iron are tightening globally as China presses on with supply-side reforms.

Citigroup remains neutral-to-bullish on oil near term as inventories are likely to fall and the physical market may tighten. Brent is seen US$58 a barrel in the fourth quarter, and US$54 in 2018, with West Texas Intermediate forecast at US$50 next year. On Wednesday, Brent traded at US$55.94 and WTI was just above US$50. The bank lowered its third-quarter natural gas forecast to US$2.9 per million British thermal units.

"Supply-demand fundamentals continue to trend in-line with our constructive expectations and oil inventories have fallen at a rate of about 1 million barrels a day over the course of the summer," the bank said.

"This is expected to continue through 2017," it said.

BLOOMBERG