- JEDDAH: Overall, 2011 was a challenging year for commodities, with the only major commodities gaining being Brent, refined products and gold.
- Surely commodities got off to a decent start in 2011, but the environment turned more challenging in the second half of the year against a backdrop of deteriorating macro fundamentals.
Energy sector
Brent crude oil surged in the first half of 2011 due to supply shocks coming from Libya, the North Sea, and West Africa. The WTI curve was weak in H1 due to the glut at Cushing, but tightened considerably in Q4 on stock draws and news of the Seaway pipeline reversal. Refined products had a strong first half on strong EM demand. Crude and refined products were range-bound in H2 on macroeconomic concerns and slowing global growth. US natural gas fundamentals continue to be weak on phenomenal production growth and record level inventories.
Precious metals
Gold, in particular, had a stellar year returning 9.7 percent and posted a positive return for the 11th year running. This was mainly due to continued loose monetary policy and reserve diversification (into gold) from central banks.
Base metals
Base metals were roughly flat in the first half of 2011, but sold off in the second half on the back of deteriorating macroeconomic fundamentals and cyclical slowdown in growth.
Agriculture
After a stellar performance in 2010, the agriculture sector was bearish overall in 2011. Wheat was the weakest spot, mainly due to a bumper global harvest. Corn was weaker in H2 due to a risk that a potential fall-out in Europe could reduce demand for biofuels and feed.
Outlook for 2012
In the 2012 Commodity Outlook, BofA Merrill Lynch presents its favorite trades for the current year. If one is worried about sovereign default, QE or stagflation, then gold is the best play. For those who believe the gloom and doom is overdone, Brent oil and corn present upside potential. For those looking to short commodities, BofA Merrill Lynch propose wheat excess return, where there has been a negative outlook on both flat price and roll returns.
Since January 2005, commodities have broadly outperformed traditional equity indices, but there has been diverse performance among commodity indices. Specifically, the MLCX TR index outperformed the Standard & Poor's US 500 TR index by 2.5 percent on average during the last seven years. However, the same comparison for the S&P GSCI TR index yields -3.72 percent and for the DJ-UBS TR index, the relative performance is -1.03 percent. In this time period, EM equities and US bonds fared better than commodity indices, the BofA Merrill Lynch report said.
