Commodities, reflation drives performance

Commodities have outperformed, supported by the geopolitical situation in many oil-producing countries. Brent crude has risen to $75 per barrel, its highest level since 2014.

We have overweight positions on the metals and mining sector, reflecting our positive view of commodities and the economic cycle.

Energy and commodity prices are continuing to rise against the background of solid economic growth. This trend will continue given the current reflation scenario.
Since June 2017, the Brent crude price has risen almost 70% and reached $75 in late April. The main reason for that is reduced production along with geopolitical risks in Venezuela, Iran, Russia, Libya and Angola. In Angola, lower exports are also the result of a lack of investment in the sector. Production cuts decided by OPEC and Russia have exceeded their targets, with quota compliance of 162%. As a result, while oil inventories had been high during the growth phase of the economic cycle, they are now falling rapidly while global demand is continuing to rise.

However, the current uptrend in oil prices could slow. The number of US shale wells is starting to rise again as prices increase, having remained relatively steady for several months. US oil exports have been rising constantly since the ban on them ended in late 2015. Extended OPEC production cuts and geopolitical developments will also play a role. Overall, demand could exceed supply until the end of the current economic cycle, keeping up the pressure on prices.