20181107-法国巴黎银行-MARKETS_CALL_COMMODITY_OUTLOOK_24页_2mb

BNP PARIBAS MARKETSCALL SUMMARY

Core Content

BNP Paribas provides a weekly cross-asset market outlook, focusing on oil and energy markets, inflation trends, and commodity dynamics. The analysis highlights the current state of oil prices, supply and demand factors, and their impact on inflation and emerging market (EM) yields. It also suggests a specific trade strategy for oil.

Main Points

Oil and Energy Markets

• Current Outlook: Oil prices are expected to rebound in 2019 due to reduced supply from Iran and Venezuela, and the potential for a supply shock.
• Supply Constraints: OPEC spare capacity is low (1.4 mb/d), and Saudi Arabia is increasing production to offset the drop in Iranian oil.
• US Production: US oil production has reached over 10 mb/d, but export infrastructure is a constraint. This is expected to improve by late 2019, increasing the US's role in the global oil market.
• Price Forecast: BNP Paribas forecasts Brent crude to trade around USD 85 in Q1 2019 and USD 79 in 2019, higher than the consensus.
• Trend Model: The trend model indicates a high probability (79%) of an upward move in oil prices, suggesting the market is in a bull cycle.

Inflation Impact

• Headline Inflation: Higher oil prices are expected to push headline inflation above core inflation in the US and eurozone by 1-1.5 percentage points.
• Breakevens: The rise in headline inflation is supportive for an increase in breakeven inflation rates, especially in the US and Europe.
• Inflation Lag: The effect of oil price increases on inflation is lagged by three months in the US and Europe, with a larger impact in the US.

Commodity Markets

• Demand Slowdown: A moderation in global GDP growth and reduced demand from China (due to slower fixed asset investment) are putting downward pressure on industrial metals.
• Supply and Inventories: Industrial commodity inventories have fallen, but production remains high, leading to some downward pressure. However, declining inventories may support prices.
• Commodity Correlation: Commodity prices are loosely tied to global growth, with supply and inventory conditions causing volatility.

Trade Strategy

• Recommended Trade: Investors who agree with the outlook may consider buying an 80/85 call spread on Brent crude, expiring in March 2019, offered at 71.5 cents. The forward price is around USD 72.60.

Key Information

• Key Contributors:

  • Robert McAdie (Global Markets Head of Strategy Research)
  • Pierre Mathieu (Senior Cross Asset Strategist)
  • Benedicte Lowe (Cross Asset Strategist)
  • Kris Gjini (Cross Asset Strategist)
  • Harry Tchilingurian (Economist, Oil)
  • Luca Maia (EM/Latam Strategist)

• Dial-in Details:

  • UK: 0808 109 0700
  • USA: 1 866 966 5335
  • Password: "The BNP Paribas Markets Call"

• Sources: Bloomberg, BNP Paribas, Macrobond, and US Energy Information Administration

Summary Table

Additional Insights

• Industrial Metals: Demand for industrial metals is under pressure due to reduced growth in China, leading to lower prices.
• Emerging Markets: EM countries are likely to see rising yields as oil prices increase, with India being particularly sensitive to Brent crude prices.
• Commodity Factor Model: The MarFA™ model indicates that WTI is currently too low and may rebound, with fair-value around USD 71.

Conclusion

BNP Paribas's analysis suggests that oil prices are likely to rise in 2019, driven by supply constraints and potential supply shocks. This is expected to support headline inflation and affect EM yields. The recommended trade strategy is to buy a call spread on Brent crude, reflecting the positive outlook for oil prices. The report also emphasizes the importance of global growth and trade dynamics in shaping commodity markets.