After a couple of rallies in the past fortnight spurred by fiscal and monetary efforts to stabilise the world economy, Goldman Sachs and Stephen Schork are looking to more sustainable
Goldman Sachs’ commodities team says rallies on optimism around fiscal and monetary stimulus will probably continue to be brief “for the time being”, and that the surplus of crude and product inventories will have to reverse before such rallies can be sustained. However:
“We maintain that such a shift is likely to occur in 2H2009 as the current policy activism increases the likelihood that improving economic activity will support oil demand growth against supplies tightened by OPEC cuts and accelerating non-OPEC decline rates.
They add that a steep drawdown in manufacturing inventories is exacerbating the problem now, but will aid price rises in the second half of 2009:
“The tight credit conditions that have been a key feature of the economic recession have induced manufacturers to reduce utilization and draw down working inventories to an unprecedented degree at this point in the cycle, as evidenced by the sharp decline in the March US ISM Inventory Index (see Exhibits 1 and 2). This extreme reduction in manufacturing utilization has occurred globally, particularly in credit-intensive sectors, with inventory draw downs also substantially impacting growth in several other major economies.”
Schork also sees some cause for optimism later in the year following Friday’s dire US unemployment figures:
“Make no mistake about it. March employment numbers
were horrible. Firms are still retrenching and the jobs
picture is likely to get even worse (see Detroit’s potential
bankruptcy) in the short-run. But, employment numbers
are lagging indicators. The job cuts will likely wane
through the summer and into the fall. Given the
seemingly indiscriminate nature is which jobs were cut up
until this point, we have the makings of a significant
rebound in employment… in the long-run. Unfortunately,
for the time being it is likely to get even uglier over the
next couple of months.”
