Q1 to be a chaotic quarter for oil prices

Commodity prices have moved down sharply in H2, after a mixed performance in H1.
"Of a sample of 27 commodity prices that we track, only four have risen in H2, and only aluminium has risen by more than 5 per cent. On the downside, the value of five commodities has fallen by more than 20 per cent in H2, with Brent crude oil being the worst performer of all," according to StanChart  global economic research views, published Wednesday.
 The main price pressure in H2 has been the result of fears that global economic recovery will tail off. The asymmetric nature of this tailing off, with economic data from Europe, Japan and China disappointing markets relative to data from the US has had a further effect. The creation of expectations of relative outperformance by the US economy has produced US dollar (USD) strength, which has served as a further depressing factor for commodities. Some commodities have, in addition, been hit by specific supply-side dynamics (like crude oil).
Oil prices have been pushed sharply downwards due to market expectations of a sizeable supply surplus in 2015, which was accentuated by the OPEC's decision not to cut production on November 27.
"Given this context, we expect Q1 to be a chaotic quarter for oil prices, with Brent crude oil prices averaging USD68/bbl. However we expect the market to tighten significantly in H2, with brent crude oil prices rising to USD94/bbl on average, particularly as the current degree of surplus is relatively small," the StanChart review said.
"This should be helped by some reduction in non-OPEC supply growth. It may tighten earlier should OPEC output fall either through formal or informal mechanisms, or if the dampening effect on US output is faster than we currently expect. Assuming that there is only one chaotic quarter, we reduce our forecast for the average price of Brent in 2015 by USD 16/bbl to USD 85/bbl."
"The fundamentals for coal are weaker, and we do not expect any sustained recovery in 2015. We also do not expect any significant upside in US natural gas prices, with a large overhang of Marcellus reserves yet to be worked through, severely limiting any upside above USD 4.25/mmBtu."
"Despite the downbeat tone, we see pockets of value. In precious metals, we expect gold to rally in H2-2015 when the US dollar starts to weaken and the market starts to focus on the likelihood of a Fed tightening cycle that peaks very early."
The global banking giant further said : We expect oil fundamentals to move back to balance, and prices to start a sustained rally. However, we remain most positive on base metals, where the adjustment phase in response to China's weaker economy is most advanced; we prefer aluminium and nickel.