Optimists need a little patience

Commodities markets experienced a bit of a reality check this week, with prices falling despite little material change in the underlying demand and supply fundamentals. In the same way that optimism about demand pushed up oil prices in recent months, concern about the slow rollout of vaccines in Europe and a re-assessment of the long-term monetary policy outlook in the US sent prices tumbling this week. Assuming that the US continues to relax virus-related restrictions and that Europe’s vaccination programme gains momentum, we continue to expect a gradual pick-up in physical oil demand in the coming months, which should give a renewed lift to prices. In the absence of market-moving economic data next week, prices are likely to continue to be driven by market sentiment towards risky assets. If reports of a surge in new virus infections persist, we could see further outflows from commodity markets and falls in prices.