Commodities: is this a buying opportunity?

Commodities have slid over the past few weeks, with oil and copper down by over 10% from their 2011 highs. But now it's time to buy, according to Jeffrey Currie of Goldman Sachs, whose note attracted widespread attention this week. Just six weeks after saying he thought raw materials were due a correction, he now thinks prices are "more in line with near-term fundamentals". Oil, now around $112 a barrel, will reach $120 a barrel by the end of the year, according to the latest forecast. The previous target was $105.

What the commentators said

Two years ago this month, Goldman said oil was likely to reach $150-$200 within two years. Its latest call was more successful, with oil sliding by 10% in a day soon afterwards. This call hinges on the view that the current slowdown in world growth is just "a normal mid-cycle pause", so raw materials prices should soon recover. Many "argue the exact opposite", said Nils Pratley in The Guardian. "The size and speed of the global slowdown" will be "critical".

Evidence of a slowdown is certainly piling up, and it could well turn into a downturn. China, the top user of industrial metals, is "coming off the boil", said James Saft on Reuters.com. The latest survey of manufacturers pointed to the weakest growth in ten months. Japan has fallen into recession and a eurozone manufacturing index has just posted its biggest fall since Lehman. In America the four-week rolling average of weekly unemployment claims has reached a seven-month high.

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The fundamentals don't imply much scope for prices to recover strongly. In the oil market, for instance, Opec has largely made up for the loss of Libyan output, said Eugen Weinberg of Commerzbank. US crude stockpiles are close to a two decade high. The recent decline in Chinese copper inventories reflects speculation rather than final demand, said Simon Hunt of Hunt Strategic Services. Inventories in warehouses monitored by the London Metals Exchange, said Izabella Kaminska on FTalphaville.ft.com, look very "plump". The upshot? Oil is set to drop below $90, reckoned Capital Economics. Copper, now at $8,800 a tonne, could be at $7,500 by then.