Investec: brent will return to $70 in 2017, Uber-isation potential long-term problem for platinum

Investec Asset Management believes oil prices and energy equities will remain volatile until a solid trend of tightening oil inventories is established. By the second half of 2016, Investec AM believes market trends will be sufficiently established to provide strong signals that activity needs to increase, otherwise 2017 will become significantly undersupplied. With balance sheets fully extended, most oil companies need to have significantly higher oil prices before they can increase activity. "We anticipate oil price momentum in the second half of the year – remarks Investec – with the potential for oil prices to move 40% higher than they were at the end of 2015. Overall, with our view that oil prices will improve through the year, we anticipate average 2016 oil prices will be similar to 2015, before recovering to $70/bl for Brent in 2017". In the meantime, the global production system is working at very close to full capacity, so any interruption to supply should lead to a more immediate price reaction.

Gas 
Natural gas production in the US has proven to be more resilient than oil. The natural gas rig count is down 55% since November 2014, and associated natural gas production is also impacted by the 67% fall in the oil rig count. However, well data shows greater potential for optimising natural gas expenditure than oil, so we expect declines to be more modest, which, combined with extra pipeline capacity from the Marcellus, will keep pressure on prices. Investec assumes $2.50/MMBtu in 2016, and we anticipate prices increasing to $2.90/MMBtu in 2017.

Nickel
With macroeconomic concerns dominating markets currently, nickel prices have been side-lined, with analysts concerned that oversupply may persist for some months. However, it will be difficult for prices to stay at current levels as producers will be forced to react and cut supply. At the same time, remarks Investec, consumers have destocked fully in the past year, and, when prices do turn, they will likely be quick to restock, thus driving a quicker recovery, encouraged by the pricing system for stainless steel. After the price falls, speculative length has been washed out of the market and short interest is highly driven by Chinese funds making prices very sensitive to further production cuts.

Platinum
Investec Asset Management expects that the platinum price will remain depressed due to slower growth in global auto sales with the market remaining in oversupply as labour-intensive South African producers struggle to cut-back on production due to political pressures. "In the longer-term, the ‘Uber-isation’ of the transport sector through vehicle sharing also represents a major threat to global auto sales while the increased penetration of electric vehicles could also negatively impact the demand for PGM catalysts", concludes Investec.