The latest leg-up in the oil price, to around $85 per barrel, was fuelled by persistent fears of a supply shortfall. However, we remain of the view that the market’s worst fears will not be realised and that prices will drop back over the next 6-12 months. The rise in the oil price may have been a factor boosting agriculturals this week, but the appreciation of the Brazilian real, ahead of the election this weekend, was probably a bigger driver. As it happens, we think the real could take a tumble next week given the uncertainty surrounding the election outcome and the scale of the challenges faced by the new president.
Looking ahead, there could be some sharp moves in commodity prices on Monday as Chinese investors return from a week-long holiday. It will be fairly quiet on the data front until Friday, when China will release its September trade figures. Given mounting evidence of an economic slowdown, the data will be scrutinised for signs of weaker commodity import demand.
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