Prices rally, but room for further gains is limited

The prices of most commodities across energy, metals and agriculturals rose this week. The common driver was investors dialling back their expectations of the aggressiveness of US monetary policy tightening, after data showed GDP contracted for a second consecutive quarter in Q2. However, we think investors may have gotten a little ahead of themselves and we forecast higher US interest rates than what the futures market implies. As a result, we think some of this expectation-related boost to prices will fade. Industrial metal prices also climbed on news that the People’s Bank of China will inject more money into China’s banking system to support lending to property developers. However, it’s not clear to what extent banks are willing to take on more exposure to the troubled property sector. Elsewhere, European natural gas prices surged again owing to Russia further restricting exports to Europe. We revised up our forecasts for non-US gas and coal prices this week to account for the tighter supply picture. Next week, OPEC+ meets on Wednesday to decide on oil production policy in September and possibly future months. News outlets report that the group will consider keeping output unchanged in September, although a “modest increase” will reportedly be discussed. Indeed, we suspect OPEC+ will agree to a looser production policy sooner or later, perhaps by even scrapping quotas. Meanwhile, we released new medium-term price forecasts in our quarterly Outlook publication yesterday.