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Oil and metal prices set to surge as US and Britain go on spending spree

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Oil and metal prices set to surge as US and Britain go on spending spree

Oil and metal prices are poised to surge in coming months as Britain and the US launch a once-in-a-generation infrastructure spending spree and the global economy roars back to life.

Market strategists are bracing for the biggest jump in oil demand ever after drivers returned to the roads en masse. Crude is forecast to hit its highest level in three years, ultimately driving prices higher at the pump.

Meanwhile president Joe Biden is about to launch a $2 trillion (£1.5 trillion) programme to rebuild America’s crumbling roads and bridges, while in the UK Prime Minister Boris Johnson has talked about the need for a recovery led by investment in green energy.

Goldman Sachs has predicted a 14pc jump in commodity prices over the next six months, pushing a broad measure of metals and oil up to its highest level in more than six years.

The Wall Street bank expects copper to rise by over 10pc to reach more than $11,000 per ton by the first quarter of 2022, while Brent crude, the UK benchmark oil price, is set to hit $80 per barrel – a level not reached since 2018.

Goldman expects demand to climb by 5.2m barrels per day over the next six months, 50pc larger than the previous record increase.

Joe Biden wearing a suit and tie talking on a cell phone

Metal and oil prices have bounced back sharply from last year’s nadir when swathes of factories were shut and millions of drivers stayed home.

In America, oil briefly entered negative territory because demand had dropped so low that the country started to run out of storage space.

A wave of consumer spending is now being predicted as vaccines bring the crisis to an end. There are fears that the infrastructure splurge could even lead to some shortages, particularly of metals required for clean energy investment and electric vehicles.

Jeffrey Currie, head of commodities research at Goldman, said: “It is important to remember that commodity markets are driven by volume, or the level of demand. The magnitude of the coming change in the volume of demand – a change which supply cannot match – must not be understated.”

He said president Biden’s New Deal-style spending on the green agenda will be crucial to pushing up prices, with copper-intensive climate spending at the centre of surging demand.

The White House is reportedly planning to generate 80pc of the US’s power from renewable sources by 2030.

John Meyer, head of research at SP Angel, said the push is sure to drive strong demand for copper and rare earth commodities essential for computing and battery production.

He said: “Logistics, disruption, raw materials and Covid-19 working practices are all coming together to fuel inflation.”

The spending jump is already feeding through to higher inflation. Oil’s sharp recovery has pushed petrol prices in the UK up to an average of more than £1.25 and diesel has climbed to almost £1.30 per litre, up from £1.15 and £1.20 respectively at the start of this year and below £1.10 and £1.15 at this point in 2020.

British factories are reporting the steepest increase in input prices for four years, according to PMI business surveys run by IHS Markit. Manufacturers in turn are passing on those costs, with price hikes on a scale not experienced for a decade. 

Reference: Daily Telegraph: Tom Rees, Tim Wallace  

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