Energy prices to remain range-bound, providing tactical range-trading opportunities. The dramatic increase in US shale oil and natural gas production has had a large structural impact on energy markets. The rise of US oil production has meant that global oil supply has been ample despite strong demand and reduced supplies from Libya and Iran. Although we expect oil demand to remain robust in 2014, increases in US supply will likely limit price increases. On the other hand, price declines should be limited by the ability of Saudi Arabia to cut back oil supply if prices fall sharply, and continued supply risks in Libya, Iran and Iraq should also help put a floor under prices. ETF Securities therefore expects that Brent oil prices will trade in the $100-$120/bbl range, with the WTI oil price trading at an average discount of around $10-$15/bbl. The company also expects the US Henry Hub natural gas price to trade in a $3.5-$4.5MMBtu range.
Agriculture price performance is expected to be diverse, with corn and coffee offering potential long opportunities in 2014. Weather and other supply-side factors have been the main price drivers in 2013 and are likely to remain the key price drivers in 2014. Corn and wheat prices dropped sharply in 2013 as the US experienced record crops, the Arabica coffee price dropped to nearly a seven year low and the sugar price slumped on a supply glut. Meanwhile the cocoa price surged on poor crops in West Africa. ETF Securities will be watching for potential opportunities to go long corn in 2014 as substantial surpluses are now factored into prices and analysts forecasts. Futures positioning is extremely negative, indicating scope for a short covering rally. ETF Securities remains short sugar as we enter 2014 though this is viewed as a short-term tactical trade. Nicholas Brooks says, “it is still too early to go long Arabica coffee in our view, but we will be watching for an opportunity to go long in 2014.”
