1. business and industrial
2. energy
3. oil

Deutsche Bank
Markets Research
Global
Commodities
Date
24 October 2014
Michael Lewis
Strategist
(+44) 20 754-52166
[email protected]
Commodities Weekly
Michael Hsueh
Overview: In last week’s Commodities Weekly report we attempted to estimate
the steady state or equilibrium price for crude oil. In this week’s report we
examine what are likely to be downward forces on the long term fair value of
the crude oil price such as falling cost curves across the US shale industry and
our expectation of a rapid appreciation in the US dollar over the next few years.
Energy: In the absence of OPEC production cuts and a cold winter, there
appears little fundamental support for the oil which will continue to be
vulnerable to the downside. An added risk is the US dollar, which we expect
will strengthen aggressively over the next few years.
Precious Metals: We would view a cold US winter and the associated
downside risks to US real economy data that would be accompany such an
event as representing the best chance of a sustained rise in the gold price.
However, we continue to view the long term process of adjustment in US
interest rates, equity and FX markets as bearish for gold.
Industrial Metals: Nickel has been the worst performing market over the past
month as LME inventories have hit a record high. The broader sector
continues to be vulnerable to signs of a slowdown in Chinese data and
specifically property market indicators.
Agriculture: Grain and soybean prices have stabilised at multi year lows over
the past month. From a valuation perspective, the sector is cheap, as
highlighted by the aggressive overweight exposure to corn in the DBLCI-Mean
Reversion index. However, we see few catalysts that might trigger a sustained
rally in the near future.
The performance of crude oil following an OPEC quota reduction
in non-recessionary environments
Strategist
(+44) 20 754-78015
[email protected]
Jayati Mukherjee
Strategist
(+91) 22 6181-2036
[email protected]
Michael Lewis
Strategist
(+44) 20 754-52166
[email protected]
Michael Hsueh
Strategist
(+44) 20 754-78015
[email protected]
Jayati Mukherjee
Strategist
(+91) 22 6181-2036
[email protected]
Michael Lewis
Strategist
(+44) 20 754-52166
[email protected]
Michael Hsueh
125
Nov-03
Strategist
(+44) 20 754-78015
[email protected]
120
Apr-04
Table
of Contents
Jayati
Mukherjee
130
Brent indexed at 100 at month end
before OPEC quota reduction
115
Feb-07
110
Feb-92
105
Apr-91
100
Jan-93
95
90
Commodity Performance...........................................Page 2
Strategist
(+91)
22 Trends:
6181-2036
Global
Oil & Long Term Pricing ...................Page 3
[email protected]
Asset Class Performance ........................................Page 11
Commodity Price Forecasts ....................................Page 14
Jayati Mukherjee
Strategist
(+91) 22 6181-2036
[email protected]
85
80
-10
0
10
20
30
40
50
60
70
Number of days before/after OPEC production quota reduction
Sources: Deutsche Bank, Bloomberg Finance LP
________________________________________________________________________________________________________________
Deutsche Bank AG/London
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.
24 October 2014
Commodities Weekly
Commodity Performers
Energy
 week to date
 year to date
% returns
week on week
US natural gas -4.58
WTI
Brent -21.63
Gasoline (RBOB) -20.78
-0.18
Heating oil
Heating oil
1.16
Uranium
1.41
WTI
1.53
US natural gas
Coal (API#4)
Brent
-4
-2
0
2
4
-18.79
-16.59
-14.37
Uranium
2.79
-6
% returns
year-to-date
Coal (API#4) -22.40
-0.74
Gasoline (RBOB)
View
4.65
-30
6
-20
-10
0
10
20
Precious Metals
 week to date
Silver
 year to date
% returns
week on week
-1.50
Gold
-1.16
Platinum
0
2
4
1.96
Palladium
4.41
-2
-8.71
Gold
Palladium
-4
% returns
year-to-date
-11.60
Platinum
-0.06
-6
Silver
View
8.45
-30
6
-20
-10
0
10
20
Industrial Metals
 week to date
Nickel
 year to date
% returns
week on week
-2.07
Tin
0.91
Zinc
1.67
Copper
Aluminium
-2
0
-9.05
Lead
-8.52
2
8.96
9.83
Aluminium
3.92
-4
Copper
Zinc
2.71
-6
% returns
year-to-date
-13.09
Nickel
2.17
Lead
Tin
View
4
6
10.43
-30
-20
-10
0
10
20
Agriculture
 week to date
Sugar
 year to date
% returns
week on week
-3.06
-1.64
Lumber
1.89
Corn
-4
-2
0
2
-12.97
Lumber
4
-8.47
Sugar
2.77
-6
-14.75
Wheat
2.13
Soybeans
% returns
year-to-date
Soybeans -24.3
Corn
Wheat
6
View
-1.52
-30
-20
-10
0
10
20
Sources: Deutsche Bank, Bloomberg Finance LP (Prices as of close of business Thursday October 23, 2014. Dials refer to the current quarter)
Page 2
Deutsche Bank AG/London
24 October 2014
Commodities Weekly
Global Trends
Crude Oil: The Role Of OPEC & US Tight Oil

We view the decline in oil prices as being substantially supply driven, with
Saudi production remaining largely unchanged as Libyan production has
risen. The widening discount of the Saudi-controlled Arab Light price
versus the Oman/Dubai average suggests a move to preserve market
share.

The likelihood of a unilateral Saudi curtailment has receded despite low
prices as statements from Saudi officials indicate that they are prepared to
tolerate a period of lower pricing in order to stimulate discipline across a
broader cross-section of supply both in other OPEC members as well as
non-OPEC producers.

The extent of capex reductions in US tight oil is also likely to be limited in
light of lower breakeven estimates, along with the fact that producers are
now likely to shift 2015 capex away from economically marginal acreage
towards core regions. Consequently, DB’s North American Oil & Gas
Equity Research team are not revising lower their US shale oil production
growth targets for 2015 despite the recent move lower in oil prices.

Although a seasonal pickup in crude oil demand will be triggered by
refinery turnarounds concluding in November, we expect renewed
weakness in 2015 owing to the medium-term trend of non-OPEC supply
growth expanding at a faster rate than total demand growth, even at
current oil prices.

Taken in concert with what appears to be a sluggish response from OPEC
unfolding, we view the supply-demand landscape as fundamentally weak
through the end of 2016.

In fact not only is non-OPEC supply growth forecast to exceed global oil
demand growth next year and into 2016, but we are also faced with the
increasing risk of a rapid strengthening in the US dollar. Indeed last week
DB’s FX Research upgraded its targets on the US dollar such that it sees
EURUSD falling to 0.95 by 2017
Overview
We view the decline in oil prices as being substantially supply driven as Libyan
production has recovered materially and US tight oil yoy growth rates rose
slightly from August to October. Consequently we would expect that the
antidote to the price decline must also largely originate from the supply side.
Production from oil sands mining, although high in cost, is associated with
large upfront investments in upgrading facilities which means these operations
may be less responsive to short-term price movements.
Consequently we believe that the most likely sources of supply adjustments
are OPEC curtailment and reduced investment in US tight oil production.
However, the likelihood of both these events occurring has fallen sharply in our
view, owing to a shift in Saudi strategy and lower breakeven estimates for US
tight oil. Thus we revise our price forecast deck on the expectation of a longer
period of lower pricing to USD90/bbl as OPEC members struggle to coordinate
action and the expansion in US tight oil production continues unabated.
Deutsche Bank AG/London
Page 3
24 October 2014
Commodities Weekly
Figure 1: OPEC production allocation reductions since
1984
Figure 2: The performance of crude oil following an
OPEC quota reduction in non-recessionary environments
0.00
130
Brent indexed at 100 at month end
before OPEC quota reduction
125
Nov-03
120
Apr-04
-0.50
million barrels per day
115
-1.00
Feb-07
110
-1.50
Feb-92
105
Apr-91
100
-2.00
Asia crisis
Jan-93
Global downturn
& 9/11 attacks
95
-2.50
90
Sources: Deutsche Bank, OPEC
Jan'09
Oct'08
Nov'08
Apr'04
Nov'06
Jan'02
Nov'03
Apr'01
Sep'01
Apr'00
Feb'01
Jul'98
Apr'99
Apr'98
Jan'93
Mar'93
Apr'91
Feb'92
Jan'88
Nov'86
Nov'84
-3.00
Feb'07
Global
financial crisis
85
80
-10
0
10
20
30
40
50
60
70
Number of days before/after OPEC production quota reduction
Sources: Deutsche Bank, Bloomberg Finance LP
Historically when OPEC cuts oil prices respond
Since 1984, there have been 11 distinct cycles of OPEC production allocation
reductions. Over this period, a typical quota reduction at the start of the cycle
has amounted to 1.24mmb/d. Traditionally the most powerful and durable
cycles of OPEC production cuts occur during global recessions, as OPEC
attempts to cut production as fast as world oil demand growth is slowing. In
these environments, namely 1998, 2001 and 2008, OPEC allocation reductions
have on average amounted to 4.6mmb/d and taken 12 months to implement
with crude oil prices only stabilising three months after the final quota
reduction.
Today, while demand side conditions are stronger than during previous
recessionary periods suggesting OPEC production cuts may be smaller in size
and shorter in duration, on our forecasts the cartel will still need to be on alert
to cut production to address the growth in non-OPEC supply as well as the
potential return of Libyan and possible Iranian crude oil supply.
We examined the performance of crude oil following an OPEC quota reduction
outside of recessionary periods. We find OPEC has had a strong track record
in defending the oil price following a quota reduction. Figure 2 examines the
performance of Brent crude oil in the 10 days before and the 70 days after a
quota reduction. We find that in all the episodes OPEC action has secured
higher prices over a two to three month horizon. However, applying this
analysis to today may be slightly more problematic since OPEC has to contend
with a level of non-OPEC supply growth significantly in excess of historical
norms. This might suggest that when OPEC finally decides to cut production it
may have to take action greater than historical norms. This might suggest
production cuts in excess of 1.2mmb/d.
Hints of a Saudi strategic shift can be seen in the numbers
The emerging shift in Saudi strategy means that it may be stepping away from
its predominant role as the sole provider of swing capacity in the market. This
role encompasses both curtailments in times of oversupply as well as
increases in response to unplanned supply disruptions. While both activities
entail costs either in the form of reduced revenue or idle capacity, the indicated
shift should be understood as a rejection of the former rather than the latter,
since only Saudi Arabia holds any significant spare capacity. As of last month,
Saudi spare capacity is estimated at 2.7 mmb/d against an estimated 0.8
mmb/d for all other OPEC members combined.
Page 4
Deutsche Bank AG/London
24 October 2014
Commodities Weekly
According to Reuters, this purported shift in strategy has been communicated
by Saudi officials in meetings in New York last week. IT appears to reveal that
the kingdom is willing to tolerate Brent prices between USD80-USD90/bbl for a
period of 1-2 years in order to achieve two aims:
(1) to slow increases in US tight oil production and
(2) to pressure other OPEC members to contribute to supply discipline.
If true, this would mark a significant divergence from the acceptable range of
prices previously stated by oil minister al-Naimi as being “$100, $110, $95.”
The possibility of such a change is made more plausible by analysis carried out
by Deutsche Bank Emerging Markets Research which showed that Saudi
Arabia is equipped with sufficient government assets to weather the budget
deficits which would result from Brent at USD83/bbl for a period of 7-8 years,
assuming no changes to nominal spending, Figure 3.
Figure 4: Government assets as a buffer against lower oil prices
Government assets
Budget deficit at $83/bbl
USD bn
% GDP
USD bn
Nigeria
4.1
2.4
16.4
0.3
Russia
173
8.5
45.4
3.8
446.9
58.1
56.8
7.9
Saudi Arabia
Years of assets
Source: Deutsche Bank Emerging Markets Research
Our expectation of a strengthening US dollar, which has already rallied by 18%
since the July 2011 lows on a trade-weighted basis and our expectation of the
US dollar hitting 0.95 against the euro by 2017 would also tend to indicate
long term downward pressure on oil prices. Since OPEC’s primary assets (oil)
are denominated in US dollars and their main liabilities (imported
manufactured goods from Europe) are denominated in euros, this US dollar
outlook will not only improve the purchasing power of the cartel, but, may
allow them to tolerate a lower acceptable range compared to the ones cited by
oil minister al-Naimi in recent years.
Figure 3: DB oil price forecast
WTI
(USD/bbl)
98.01
108.74
-10.74
Q1 2014A
98.61
107.87
-9.26
Q2 2014A
102.99
109.76
-6.77
Q3 2014E
97.25
103.46
-6.21
Q4 2014E
82.00
87.00
-5.00
While Saudi efforts to preserve market share may be viewed as pure
conjecture, recent data does suggest efforts are underway to preserve market
share. Since Libyan production recovered from 240 kb/d in June to 780 kb/d in
September, Saudi production (including its share of Neutral Zone production)
has held steady at 9.7-9.8mmb/d. This has occurred despite a much touted
reduction from 10 mmb/d to 9.7mmb/d that occurred in August which merely
brought Saudi production back towards its average level for the year.
2014E
95.21
102.02
-6.81
Q1 2015E
81.00
88.00
-7.00
Q2 2015E
81.00
89.00
-8.00
Q3 2015E
80.00
89.00
-9.00
Q4 2015E
80.00
89.00
-9.00
2015E
80.50
88.75
-8.25
2016E
80.00
90.00
-10.00
As a consequence, total OPEC production relative to its 30 mmb/d quota has
risen from virtual compliance with the quota from January to May, to one
where as of last month the cartel is producing between 700-900 kb/d above its
agreed production allocation.
2017E
80.00
90.00
-10.00
2018E
85.00
90.00
-5.00
Deutsche Bank AG/London
2013
Brent WTI- Brent
Spread
(USD/bbl)
(USD/bbl)
Source: Deutsche Bank
Page 5
24 October 2014
Commodities Weekly
Figure 5: OPEC member deviation from individual
country quota (kb/d, inferred since 2007)
2000
1500
Figure 6: OPEC production in excess of total quota (kb/d)
Saudi Arabia
4500
Venezuela
4000
Libya
3500
1000
3000
500
2500
0
2000 2001 2003 2004 2006 2007 2009 2010 2012 2013
-500
-2000
2000
1500
1000
500
-1000
-1500
OPEC Production in Excess
of Total Quota (kbd)
Venezuela
general strike,
2002-2003
Libya civil war,
2011
Source: Bloomberg Finance LP, OPEC, Deutsche Bank
0
-5002000 2001 2003 2004 2006 2007 2009 2010 2012 2013
-1000
Source: Bloomberg Finance LP, OPEC, Deutsche Bank
Secondly, we can observe that the differential of Saudi Arabia’s Arab Light
blend versus the Oman/Dubai average for Asian deliveries has fallen sharply
from a premium of USD1.65/bbl for September loadings to a discount of
USD1.05/bbl for November loadings. This suggests that Saudi Aramco is
determined to maintain current levels of exports at the expense of sales prices
achieved. This represents the sharpest discount since the -USD1.25/bbl level
observed in December 2008, during a quarter in which global oil demand
contracted by 3.0 mmb/d, in contrast to the current quarter when we still
expect oil demand to grow by 0.8 mmb/d.
The fall in Brent prices has also been accompanied by a rise in short
positioning to the highest levels since reporting began in 2011, as shown in
ICE Futures COT report for the managed money customer group, Figure 8. As
the bulk of this positioning shift occurred before Brent prices fell below
USD100/bbl, we can conclude that the recent decline has not been
substantially driven by speculative activity.
Figure 7: Differential of Saudi Arab Light to Oman/Dubai
average (USD/bbl)
5
Figure 8: ICE Futures COT managed money accounts
(thousand contracts)
350
300
4
Long
Short
Net
250
3
2
1
200
150
100
50
0
2000 2001 2003 2004 2006 2007 2009 2010 2012 2013
-1
0
Jan-11
Jan-12
Jan-13
Jan-14
-2
Source: Bloomberg Finance LP, Deutsche Bank
Page 6
Source: ICE Futures, Bloomberg Finance LP, Deutsche Bank
Deutsche Bank AG/London
24 October 2014
Commodities Weekly
When can we expect a supply adjustment?
For the upcoming OPEC meeting scheduled for 27 November we do not see a
coordinated cut in production for three reasons, the first of which is the new
Saudi strategic positioning described above. The second reason is that there
has been a diversity of opinion expressed in public statements by oil ministers,
suggesting that an agreement may be difficult. Iran has reversed course from
calling for prompt action as late as 27 September to now stating that there is
no need for an emergency meeting while expressing confidence that the
weakness is primarily seasonal and citing the strong US dollar as a
compensating factor. Kuwait’s oil minister has also stated that an OPEC cut is
unlikely and that it would not necessarily be effective owing to rises in US tight
oil production. The loudest voice still calling for a quota reduction is Libya,
whose OPEC governor has cited the need for a cut of 500 kb/d while also
arguing that Libya itself should be exempt.
The final reason why a cut may be unlikely is that currently quotas for
individual member has not been in place since 2007. As a result, this means
that any coordinated cut (shared amongst OPEC members) would first require
a re-establishment of these country breakdowns, which itself could be
contentious and thereby introduce delays.
For US tight oil, a supply curtailment in the near term also seems unlikely for
several reasons. First, revised estimates of the incentive cost breakevens
indicate that costs are now lower likely owing to efficiency gains, a story
familiar from unconventional gas production. Only relatively minor volumes of
2015 production would become unattractive at a WTI price of USD80/bbl, and
perhaps only 250 kb/d would be uneconomic at a WTI price of USD70/bbl.
Importantly, these future uneconomic volumes reflect planned investments
which can be altered. In response, we expect that producers will choose to
reallocate this investment towards more promising acreage and away from
higher-cost regions, largely cancelling out any change to production growth.
Finally, we note that hedging activity and the duration of drilling contracts
mean that adjustments to production, if any, would take effect gradually.
Figure 9: Evolution of global oil demand forecast
Figure 10: World demand growth and non-OPEC supply
growth
2015
1,800
93
2014
1,600
92
2013
1,400
2012
1,200
Global oil demand (mmb/d)_
94
91
90
2011
89
2010
88
1,000
800
87
2008
86
2009
600
85
400
84
200
83
Sep-08
World demand growth (kbd)
Total Non-OPEC supply growth (kbd)
Jul-09
May-10
Mar-11 Jan-12 Nov-12
Month IEA forecast was made
Source: IEA, Deutsche Bank
Deutsche Bank AG/London
Sep-13
Jul-14
0
2014E 2015E 2016E 2017E 2018E 2019E 2020E
Source: IEA, Deutsche Bank
Page 7
24 October 2014
Commodities Weekly
Consequently, DB’s North American Oil & Gas Equity Research team are not
revising lower their US shale oil production growth targets for 2015 despite the
recent move lower in oil prices. Instead they see the North American producer
community simply cutting their least efficient rigs which do not represent the
vast majority of the actual production growth with increased focus on the core
regions of tight oil plays. However, one thing is certain in their view that if
WTI remains at USD80/bbl then we would see little likelihood of any further
upward revision to US crude oil supply growth from here.
Global demand growth adjusted lower but still healthy
While global demand growth estimates for 2014 and 2015 have been adjusted
lower to 0.7 mmb/d and 1.1 mmb/d from 0.8 mmb/d and 1.2 mmb/d over the
past month, these still represent relatively healthy rates of growth, with 2015
growth on par with the 1.1 mmb/d average since 2000. Moreover, the
overarching theme from our macro research team remains that world GDP
growth will accelerate from 3.3% this year to 3.9% next year. The key
concern, however, lies with China since it represents roughly 20% of global oil
demand growth.
Over the past week, we have marked down estimates of China GDP growth to
7.3% in 2014 and 7.0% in 2015 on a slowdown in property investment which
is expected to slow further at least into mid-2015. A revision of the
government’s growth target for 2015 from 7.5% to 7.0% is also likely.
Consequently, the risk is that this may then detract further from oil demand
growth in China.
In the nearer term, we continue to expect a pickup in crude oil demand owing
to refinery turnarounds concluding in the month of November, as well as a
rising product demand into the heating season. However, this dynamic
pushes against a largely unbroken medium-term trend of non-OPEC supply
growth expanding at a faster rate than total demand growth, even at current
oil prices. Taken in concert with what appears to be a sluggish response from
OPEC unfolding, we view the supply-demand landscape as fundamentally
weak through the end of 2016 which OPEC will not be able to ignore
indefinitely.
Currently, the crude oil forward curve assumes Brent will stabilize at just under
USD90 over the next two years. On our reckoning, this can only be achieved
in an environment where OPEC takes action and cuts production. We expect
this to occur sometime in early 2015.
Michael Hsueh, (44) 20 754 78015
[email protected]
Michael Lewis, (44) 20 754 52166
[email protected]
Page 8
Deutsche Bank AG/London
24 October 2014
Commodities Weekly
Asset Class Performance
Figure 2: Excess returns in 2014
Commodities continue to be the worst performing asset class so far this
year. In contrast, the performance of risk factor strategies has been
relatively more successful.

Indeed as commodity prices have exhibited more powerful trends recently
this has provided a more constructive environment for momentum
strategies. In terms of the DB Momentum index returns are up 2.8%
during the current quarter.

In contrast long only commodity index strategies have struggled with
returns on the BCOM and SPGSCI down 1.2% and 5.6% respectively since
the end of the third quarter.

After the violent sell-off in commodity returns in the first half of October,
the past week has seen some stability return to commodity markets. In
fact with the exception of energy, all commodity sectors have been able to
stabilize or deliver positive returns since the end of September.

Of the group, energy continues to be the worst performer not only since
the end of the third quarter but also year to date. In fact this year will mark
the worst annual performance in energy returns since 2008. Despite this
weakness, we expect energy returns will continue to be vulnerable to a
stronger US dollar and in the absence of both OPEC production cuts and a
cold northern hemisphere winter.

After energy, agriculture has been the worst performing sector on an
excess returns basis so far this year. However, during the quarter the
sector has been able to deliver strong positive returns. We would view
this rebound more of a reflection of positioning and valuation rather than
an underlying tightening in market fundamentals.

In terms of mean reversion strategies, the DBLCI-MRE continues to be
underweight WTI and overweight corn and silver relative to its base
weights. We are sympathetic to a short energy versus long agriculture
strategy heading into next year given strong supply growth in OPEC and
the possibility that the agricultural sector is under-pricing event risk.

Beta

WTD

QTD

YTD Sharpe
DBLCI-OY Balanced
0.50
-1.53
-9.62
DBLCI-OY Diversified
0.52
-3.68 -11.80 -1.41
DB Booster
-0.11
-0.95
-6.93
-1.13
DBLCI-Mean
Reversion
1.56
1.59
-8.43
-1.30
DBLCI-MR Enhanced
0.35
-0.13
-5.19
-0.88
DBLCI-MR Plus
0.00
0.00
-2.85
-1.89
DBLCI
Backwardation Long
-0.46
-3.39 -10.34 -0.98
-0.21
-0.99
-0.14
-0.05
DBLCI
-1.06
Backwardation Alpha
0.50
-4.73
-0.52
DBLCI Momentum
Alpha
2.76
1.35
0.00
Risk factors
DB Commodity
Curve Alpha Lite
-0.36
SPGSCI sector performance
Energy
0.55
-8.97 -16.69 -0.97
Industrial
2.67
-0.01
-1.66
-0.11
Precious
-1.04
1.35
0.23
-0.70
Agriculture
0.07
6.84
-12.29 -1.35
Livestock
0.83
0.28
20.52
1.50
Performance of other benchmark indices
SPGSCI
0.62
-5.58 -12.64 -1.10
BCOM
-0.26
-1.22
-6.77
-0.92
Sources: Deutsche Bank, Bloomberg Finance LP
(Figures are cob October 23, 2014. Sharpe ratios are calculated on a YoY
basis)
Alpha
Enhanced Beta
4
Excess returns ytd (%)
1.4
2
0
6
Total returs year to date (%)
Commodities: BCOM
8.1
FX: DB Currency Returns Index
Bonds: DBIQ Global IG Sovereign
6.2
Equity: MSCI Global
EM: DBIQ EMLE
3
1.9
9
-0.1
-2
-4
-6
-8
-1.58
Figure 3: 2014 asset class returns
compared
Figure 1: 2014 commodity index scorecard
6
(USD terms)
-4.7
-5.2
-6.8
-0.5
-6.9
-3
-8.4
-10
-9.6
-10.3
-12
BCOM
SPGSCI
-6
-11.8
-12.6
-14
0
-6.8
DBLCI-OY
Balanced
DBLCI-OY
Diversified
DB Booster
DBLCI-Mean
Reversion
DBLCI-MR
DBLCI
DBLCI CCA
DB
DB Momentum
Enhanced Backwardation
Lite
Backwardation
Alpha
Long
Alpha
Sources: Deutsche Bank, Bloomberg Finance LP (Figures are cob October 23, 2014)
Deutsche Bank AG/London
-9
Commodities
FX
Equity
Bonds
EM
Sources: Deutsche Bank, Bloomberg Finance LP (Figures are cob October
23, 2014 except for Global IG Sovereign which relates to October 22,
2014)
Page 9
24 October 2014
Commodities Weekly
Positioning, Sentiment & Liquidity Monitor
Figure 1: CFTC net non-commercial positioning
The speculative community has cut net
length in WTI to its lowest level since
May 2013. We also see that net length
in gold and silver has been scaled down
close to five year lows. Meanwhile, net
shorts in US natural gas, heating oil,
copper, wheat and soybeans are at
extreme levels.
Sources: CFTC, Deutsche Bank (Data refers to the last 5 years)
Figure 2: Relative strength index
RSI values for the agricultural complex
have risen significantly over the past
month. Any additional gains would be in
danger of putting parts of the sector into
overbought territory. Meanwhile crude
oil and other parts of the energy complex
are moving towards levels that would
imply oversold conditions. RSI values for
gold and silver indicate a less oversold
market.
Sources: Bloomberg Finance LP, Deutsche Bank (Data refers to the last 2 years)
Figure 3: Aggregate open interest
Aggregate OI for heating oil, silver and
soybeans is at extreme levels and above
the
95th
percentile.
Meanwhile,
aggregate OI for WTI, US natural gas,
platinum and sugar is at extremely low
levels and close to or below the 5th
percentile level.
Sources: Bloomberg Finance LP, Deutsche Bank (Data refers to the last 2 years)
Page 10
Deutsche Bank AG/London
24 October 2014
Commodities Weekly
Commodity Spot, Forward Curve & Volatility
Figure 1: Spot
Prices for majority of the commodities we
track are trading below their respective
median
levels.
Some
of
the
weak
performing commodities that are trading
below the 5th percentile are WTI, Brent,
heating oil, RBOB gasoline, silver and
platinum.
Conversely,
aluminium
have
palladium
been
the
and
relative
outperformers trading above the median
Sources: Bloomberg Finance LP, Deutsche Bank
Two-year historical range; body represents 25th to 75th percentiles, whiskers represent 5th and 95th percentiles. US NG, Heating Oil and
RBOB gasoline prices have been multiplied by 10 and Soybean price divided by 10
level.
Figure 2: Forward curve (1 to 13 month)
st
th
Like elsewhere in the energy complex,
backwardation in the RBOB gasoline
market has been surrendered over the
past month.
natural
Indeed now Brent, US
gas
contango.
and
heating
Meanwhile
palladium
and
eliminated
to
oil
aluminum
a
are
contango
great
in
in
has
been
extent
while
contango in silver, corn and sugar is at
extreme levels.
Sources: Bloomberg Finance LP, Deutsche Bank
Five-year historical range; body represents 25 to 75 percentiles; whiskers represent 5 and 95 percentiles.
th
th
th
th
Figure 3: Volatility: 3M Implied
Implied volatility for US natural gas is at
extreme
levels
and
above
the
95th
percentile. In fact, implied vol for the
energy sector is above the median levels.
We also see that implied vol for soybeans
is above the 95th percentile. However,
despite some recovery in implied vol since
the summer, levels of vol remain relatively
low on an historical basis.
Sources: Bloomberg Finance LP, Deutsche Bank
Two-year historical range; body represents 25th to 75th percentiles, whiskers represent 5th and 95th percentiles.
Deutsche Bank AG/London
Page 11
24 October 2014
Commodities Weekly
Commodity Price Forecasts
Energy Commodities Price Forecasts
USD
Q3 14
Q4 14
2014
Q1 15
Q2 15
Q3 15
Q4 15
2015
2016
2017
WTI (bbl)
97.25
82.00
95.21
81.00
81.00
80.00
80.00
80.50
80.00
80.00
-12.8%
-3.1%
-12.9%
-12.9%
-13.0%
-12.1%
-12.7%
-10.4%
-15.8%
87.00
102.02
88.00
89.00
89.00
89.00
88.75
90.00
90.00
-15.5%
-3.8%
-15.4%
-14.4%
-13.6%
-12.7%
-14.0%
-10.7%
-14.3%
2.20
2.68
2.20
2.40
2.30
2.20
2.28
2.30
2.30
-12.0%
-2.7%
-12.0%
-11.1%
-11.5%
-12.0%
-11.7%
-8.0%
-16.4%
2.50
2.82
2.50
2.50
2.50
2.50
2.50
2.50
2.50
-10.7%
-2.6%
-10.7%
-10.7%
-10.7%
-10.7%
-10.7%
-10.7%
-12.3%
744.00
856.98
753.00
764.00
771.00
776.00
766.00
780.00
786.00
-13.3%
-3.3%
-13.6%
-12.7%
-11.9%
-11.3%
-12.4%
-9.6%
-11.2%
101.00
114.69
101.00
102.00
102.00
103.00
102.00
105.00
105.00
-12.2%
-3.0%
-12.2%
-11.3%
-11.3%
-10.4%
-11.3%
-10.3%
-12.5%
% Change from previous forecast
Brent (bbl)
103.46
% Change from previous forecast
2.75
RBOB gasoline (g)
% Change from previous forecast
2.83
Heating oil (g)
% Change from previous forecast
IPE gasoil (t)
863.84
% Change from previous forecast
Singapore Jet (bbl)
116.54
% Change from previous forecast
US Natural Gas (mmBtu)
3.94
4.00
4.31
4.20
4.00
4.00
4.05
4.06
4.25
4.50
Thermal Coal - Japanese Guide
Price (JFY)
82.00
82.00
85.25
82.00
79.00
79.00
79.00
79.75
85.03
87.59
API4 (Richard's Bay) FOB (t)
70.38
72.00
73.44
71.00
72.00
73.00
73.00
72.25
80.00
81.46
Newcastle FOB (t)
69.06
72.00
73.66
73.00
74.00
75.00
75.00
74.25
82.00
84.46
48
52
49
55
56
57
57
56
58
61
USD/oz
Q3 14
Q4 14
2014
Q1 15
Q2 15
Q3 15
Q4 15
2015
2016
2017
Gold
1284
1195
1265
1175
1175
1150
1150
1163
1125
1150
Silver
20
19
20
19
19
19
19
19
19
19
Platinum
1438
1400
1429
1450
1500
1540
1560
1513
1575
1680
Palladium
865
830
814
835
855
860
900
863
950
1000
Rhodium
1288
1150
1154
1200
1300
1300
1200
1250
1400
1700
Uranium (U3O8) (lb) [term]
Source: Deutsche Bank, Figures are period averages
Precious Metals Price Forecasts
Source: Deutsche Bank, Figures are period averages
Page 12
Deutsche Bank AG/London
24 October 2014
Commodities Weekly
Industrial Metals Price Forecasts
Cash price
Q3 14
Q4 14
2014
Q1 15
Q2 15
Q3 15
Q4 15
2015
2016
2017
91.2
2010
88.5
1950
85.7
1888
86.2
1900
90.7
2000
90.7
2000
93.0
2050
90.2
1988
99.8
2200
106.8
2354
317.0
6986
313.1
6900
313.6
6913
306.3
6750
306.3
6750
301.7
6650
297.2
6550
302.9
6675
294.9
6500
335.8
7400
99.7
2197
95.3
2100
96.9
2136
102.1
2250
103.2
2275
102.1
2250
106.6
2350
103.5
2281
105.5
2325
109.6
2415
850.2
18739
862.1
19000
804.9
17740
907.4
20000
934.7
20600
998.2
22000
1043.6
23000
971.0
21400
1088.9
24000
1225.0
27000
998.2
22000
998.2
22000
1017.5
22425
1020.9
22500
1043.6
23000
1066.2
23500
1088.9
24000
1054.9
23250
1115.0
24575
1093.6
24103
105.1
2316
99.8
2200
97.8
2155
100.7
2220
103.9
2290
107.5
2370
113.4
2500
106.4
2345
111.2
2450
114.7
2529
Aluminium
USc/lb
USD/t
Copper
USc/lb
USD/t
Lead
USc/lb
USD/t
Nickel
USc/lb
USD/t
Tin
USc/lb
USD/t
Zinc
USc/lb
USD/t
Source: Deutsche Bank, Figures are period averages
Bulk Commodities Price Forecasts
USD
Iron Ore Spot Landed Fines Price
in China CIF (t)
Q3 14
Q4 14
2014
Q1 15
Q2 15
Q3 15
Q4 15
2015
2016
2017
90.68
92.00
101.44
98.00
90.00
85.00
92.00
91.25
90.00
88.00
Hard Coking Coal JFY (t)
120.00
120.00
125.75
130.00
125.00
130.00
140.00
131.25
150.00
157.28
Low-volatile PCI JFY (t)
100.00
100.00
104.50
110.00
105.00
110.00
120.00
111.25
130.00
133.32
USD
Q3 14
Q4 14
2014
Q1 15
Q2 15
Q3 15
Q4 15
2015
2016
2017
Molybdenum (lb)
13.27
12.70
12.34
12.70
12.50
12.50
12.00
12.43
12.00
13.00
Source: DB Global Markets Research
Minor Metals Price Forecasts
Source: Deutsche Bank, Figures are period averages
The authors of the report are grateful to Claire Schaffnit-Chatterjee for contributing to the agricultural commentary on the
front page of the Commodities Weekly
Deutsche Bank AG/London
Page 13
24 October 2014
Commodities Weekly
Appendix 1
Important Disclosures
Additional information available upon request
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this
research, please see the most recently published company report or visit our global disclosure look-up page on our
website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition,
the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation
or view in this report. Michael Lewis
Page 14
Deutsche Bank AG/London
24 October 2014
Commodities Weekly
(a) Regulatory Disclosures
(b) 1. Country-Specific Disclosures
Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the
meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.
Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and
its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is
indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. In cases where
at least one Brazil based analyst (identified by a phone number starting with +55 country code) has taken part in the
preparation of this research report, the Brazil based analyst whose name appears first assumes primary responsibility for
its content from a Brazilian regulatory perspective and for its compliance with CVM Instruction # 483.
EU
countries:
Disclosures
relating
to
our
obligations
under
MiFiD
can
be
found
at
http://www.globalmarkets.db.com/riskdisclosures.
Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc.
Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau
(Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures
Association of Japan, Japan Investment Advisers Association. This report is not meant to solicit the purchase of specific
financial instruments or related services. We may charge commissions and fees for certain categories of investment
advice, products and services. Recommended investment strategies, products and services carry the risk of losses to
principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value.
Before deciding on the purchase of financial products and/or services, customers should carefully read the relevant
disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this
report are not registered credit rating agencies in Japan unless "Japan" or "Nippon" is specifically designated in the
name of the entity.
Malaysia: Deutsche Bank AG and/or its affiliate(s) may maintain positions in the securities referred to herein and may
from time to time offer those securities for purchase or may have an interest to purchase such securities. Deutsche Bank
may engage in transactions in a manner inconsistent with the views discussed herein.
Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre
Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall
within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower,
West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related
financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre
Regulatory Authority.
Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute,
any appraisal or evaluation activity requiring a license in the Russian Federation.
Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the
Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall
within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya
District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.
United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated
by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services
activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai
International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been
distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as
defined by the Dubai Financial Services Authority.
(c) Risks to Fixed Income Positions
Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise
to pay fixed or variable interest rates. For an investor that is long fixed rate instruments (thus receiving these cash
flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a
loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the
loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse
macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation
(including changes in assets holding limits for different types of investors), changes in tax policies, currency
Deutsche Bank AG/London
Page 15
24 October 2014
Commodities Weekly
convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and
settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed
income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to
FX depreciation, or to specified interest rates - these are common in emerging markets. It is important to note that the
index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended
to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon
rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is
also important to acknowledge that funding in a currency that differs from the currency in which the coupons to be
received are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options
in addition to the risks related to rates movements.
Page 16
Deutsche Bank AG/London
David Folkerts-Landau
Group Chief Economist
Member of the Group Executive Committee
Guy Ashton
Global Chief Operating Officer
Research
Michael Spencer
Regional Head
Asia Pacific Research
Marcel Cassard
Global Head
FICC Research & Global Macro Economics
Ralf Hoffmann
Regional Head
Deutsche Bank Research, Germany
Richard Smith and Steve Pollard
Co-Global Heads
Equity Research
Andreas Neubauer
Regional Head
Equity Research, Germany
Steve Pollard
Regional Head
Americas Research
International Locations
Deutsche Bank AG
Deutsche Bank Place
Level 16
Corner of Hunter & Phillip Streets
Sydney, NSW 2000
Australia
Tel: (61) 2 8258 1234
Deutsche Bank AG
Große Gallusstraße 10-14
60272 Frankfurt am Main
Germany
Tel: (49) 69 910 00
Deutsche Bank AG London
1 Great Winchester Street
London EC2N 2EQ
United Kingdom
Tel: (44) 20 7545 8000
Deutsche Bank Securities Inc.
60 Wall Street
New York, NY 10005
United States of America
Tel: (1) 212 250 2500
Deutsche Bank AG
Filiale Hongkong
International Commerce Centre,
1 Austin Road West,Kowloon,
Hong Kong
Tel: (852) 2203 8888
Deutsche Securities Inc.
2-11-1 Nagatacho
Sanno Park Tower
Chiyoda-ku, Tokyo 100-6171
Japan
Tel: (81) 3 5156 6770
Global Disclaimer
Investing in and/or trading commodities involves significant risk and may not be suitable for everyone. Participants in commodities transactions may incur risks from several factors, including changes in supply and
demand of the commodity that can lead to large fluctuations in price. The use of leverage magnifies this risk. Readers must make their own investing and trading decisions using their own independent advisors as they
believe necessary and based upon their specific objectives and financial situation. Past performance is not necessarily indicative of future results. Deutsche Bank may with respect to securities covered by this report,
sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis. Deutsche Bank makes no representation as to the accuracy or completeness of the information in
this report. Target prices are inherently imprecise and a product of the analyst judgement. Deutsche Bank may buy or sell proprietary positions based on information contained in this report. Deutsche Bank may
engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff,
may take a view that is inconsistent with that taken in this research report. Deutsche Bank has no obligation to update, modi fy or amend this report or to otherwise notify a reader thereof. This report is provided for
information purposes only. It is not to be construed as an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Prices are current as of the end of the previous trading session
unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche
Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorized by the BaFin. In the United Kingdom this
report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Conduct Authority for the conduct of investment business in the UK
and authorized by the BaFin. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG,
Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles Quay #18-00 South Tower Singapore 048583, +65 6423 8001), and recipients in Singapore of this report are to contact Deutsche
Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a
person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia
Limited, Singapore Branch accepts legal responsibility to such person for the contents of this report. In Japan this report i s approved and/or distributed by Deutsche Securities Inc. The information contained in this
report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and
consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa:
1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any
person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting.
Copyright © 2014 Deutsche Bank AG