Exhibit 94: US Crude Oil Production Supply has stabilized after declining by 1 million barrels/day from its peak.
Million Barrels/Day Million Barrels/Day
2.0 10 9.6 15 g 1.0 l.
~
ME YY US Crude Production Change
US Crude Production Levels (Right) -1.0 6 Jan-13 Jul-13 Jan-14 0 Jul-14— Jan-18 = Jul-1 = Jan-16— Jul-16
Data through November 30, 2016. Source: Investment Strategy Group, US Department of Energy.
Exhibit 95: OPEC Crude Oil Production OPEC producers have exceeded their quota 90% of the time since 2000.
Million Barrels/Day 36
OPEC Production Subject to Quota
= Historical OPEC Quota Levels
34
32
30
28
26
24
22
20 2000 2002 2004 2006 2008 2010 2012 2014 2016
Data through November 30, 2016. Source: Investment Strategy Group, Bloomberg.
2017 Global Commodity Outlook
After losing more than half its value in the span of two years, the S&P GSCI broke its downward trend with an 11% gain in 2016, its first double- digit return since 2009 (see Exhibit 92). The rebound in oil prices was a key contributor, as oil finished the year with a staggering 52% spot price gain—an outcome made all the more remarkable by the fact that oil was down 25% at its worst point early last year. This strength was not limited to the oil patch, as industrial metals rallied 17% on average and precious metals advanced 8% (see Exhibit 93).
Despite last year’s broad-based gains, we are more circumspect about the outlook for 2017. While we expect oil to advance, it begins the year closer to the midpoint of our target range,
Exhibit 93: Commodity Returns in 2016
providing a more balanced risk/reward profile. Meanwhile, we believe the key elements of our macroeconomic forecast—Federal Reserve tightening, rising interest rates, modest US dollar gains and average inflation—represent continued headwinds to gold prices. Comparable headwinds exist for industrial metals and agricultural goods, given the continued slowdown we expect in Chinese growth.
We discuss the specifics of our outlook for oil and gold in the sections that follow.
Oil: Regaining Its Balance
Oil is finding its footing again after having stumbled dramatically over the last two years. While the market is still awash in oil inventories, the sizable reductions in capital expenditures by the largest international oil and gas companies
Most commodity subcomponents saw positive returns in 2016, reversing several years of declines.
S&P GSCI Energy Agriculture Industrial Metals Precious Metals Livestock Spot Price Average, 2016 vs. 2015 -10% -14% 0% 6% 8% 17% Spot Price Return 28% 48% 3% 19% 9% 10% Excess Return* 11% 18% 5% 17% 8% 8%
Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg.
* Excess return corresponds to the actual return from being invested in the front-month contract and differs from spot price return, depending on the shape of the forward curve. An upward-sloping curve (contango) is negative for returns, while a downward-sloping curve (backwardation) is positive.
74 | Goldman Sachs | JANUARY 2017
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