This winter’s warm weather is a threat to commodity prices — but some more than others, Goldman Sachs said in a report on Tuesday.
The weather in both Europe and the U.S. has been much warmer than average in November and December and Asia has been hot and dry over the last few months, analysts at the investment bank said. This in part because of El Nino, the wild weather phenomenon that is forecast to be particularly strong this winter and is caused by the warming of certain parts of the Pacific Ocean.
Goldman Sachs said that El Nino could have a major impact for agricultural commodities — specificallycocoa, wheat and soybean — but that energy commodities were even more at risk.
“Large inventories mean that downside energy price risks are more acute than upside agriculture price risks,” analysts led by Michael Hinds said in the report.
“Given significant oversupply, inventories have been building across most commodities since mid-2014 and negative demand shocks (or positive supply shocks) are now much more likely to have outsized negative price effects – particularly for commodities where storage is limited such as energy. As a result, we continue to see the largest near-term downside risks on distillate and crude oil prices.”