Barclays sees risk of commodity price declines due to poor fundamentals

The lack of improvement in the fundamental drivers of the commodity market meant it was exposed to the risk of a rush to the exits by investors in the second quarter of 2016, a top-rated broker said.

Copper prices may slump below $4,000 per tonne and curde oil futures beneath $30 per barrel, Barclays analyst Kevin Norrish said in a research note sent to clients on 28 March, according to Bloomberg.

"Investors have been attracted to commodities as one of the best performing assets so far in 2016. However, in the absence of any concerted fundamental improvements, those returns are unlikely to be repeated in the second quarter, making commodities vulnerable to a wave of investor liquidation,” Norrish said.

During the first two months of 2016 net flows into commodity products totaled over $20bn, for the strongest start to the year since 2011.

“Key commodities markets such as oil and copper already face overhangs of excess production capacity and inventories, but also now face another obstacle in the recovery process, that of positioning, which is now approaching bullish extremes,” the analyst said.

Barclays´s forecasts were for copper futures to average $4,520 in the second quarter, retreating to between $4,180 and $4,300 in the following three months and $4,180 in the last quarter of the year.

Norrish projected Brent crude oil futures would trade at $36, $40 and $43 over those same three quarters.

As of 15:02BST front month Brent crude futures were down by 3.203% to $39.02 per barrel on the ICE and three-month copper futures flat at $4,912.50 per metric tonne on the LME.