Goldman Sachs Bearish On Commodities Short-Term, Bullish Long-Term

In a recent report, Goldman Sachs Group Inc analysts gave its short-term and long-term take on commodity markets.

While analysts believe the worst may not be over for falling commodity prices, there is a light at the end of the tunnel in the longer-term.

2015 Outlook

Analysts believe that near-term risk in commodity markets remains to the downside, despite the plunge that commodities have already taken in the past several months. The report forecasts WTI oil prices near $40 per barrel throughout the first half of 2015.

Analysts believe that low prices will slow supply growth and stability will return to the global oil market by 2016 once the current supply glut has been eliminated.

Uncertain Recovery Timing

Goldman is forecasting $65 per barrel for WTI and $70 per barrel for Brent in 2016. Analysts note that the timing of a recovery in oil is uncertain and emphasize caution and patience before taking a positive stance on commodities.

Related Link: Analysts Are Polarized On U.S. Steel

Asset Allocation Balance

Risk reduction by diversifying across asset classes has been difficult as of late due to high cross-asset correlations. Analysts believe the global fears of deflation and stagnant economic growth resulting from plunging oil prices are to blame for the historically high cross-correlation.

In their recommended asset allocation, Goldman downgraded commodities from Neutral to Underweight on a three-month time horizon and upgraded commodities from Neutral to Overweight on a 12-month horizon.

Goldman is Overweight on equities in both the three-month and twelve-month time horizon. Analysts are Underweight on both five-year and ten-year bonds in the long-term and neutral on cash.