Yet, not all investment banks and analysts are as convinced that we are in for a commodities supercycle across the board, warning that the term supercycle is too optimistic for a bull run that could fizzle out within a year or two and could still fall victim to negative COVID-related impacts.

As early as October 2020, a few weeks before the first announcement of an effective vaccine candidate, Goldman Sachs said that commodities were headed toward a bull run in 2021. Hedges against expectations of rising inflation, a weakening U.S. dollar in which most commodities are traded, and signals of “very easy” monetary policy from central banks would be the key drivers of rallying commodities, Goldman Sachs said back then.

Goldman expected the S&P Goldman Sachs Commodity Index (GSCI) to return 42.6 percent for energy over a 12-month period, and 17.9 percent for precious metals.

Over the past three months, the S&P GSCI has outperformed the S&P 500 index, with the commodity index rising by 25 percent, compared to (just) a 9-percent increase in the S&P 500.

Over the same period, oil prices have rallied from the low $40s to above $60 a barrel, driven by vaccine rollouts, OPEC+ production cuts, and expectations of a tight market and rising oil demand later this year when economies return to growth, helped by large stimulus packages.

According to JPMorgan, there are reasons to believe that a new commodity supercycle may have just started.

“We believe that the new commodity upswing, and in particular oil up cycle, has started,” JPMorgan analysts led by Marko Kolanovic said in a note last week, as carried by Bloomberg.

The latest commodity supercycle ended in 2008 after a 12-year run, boosted by the super-spending and economic surge in China.

JPMorgan now sees several potential factors underpinning a new supercycle: post-pandemic global economic growth, “ultra loose” monetary policies, increased and tolerated inflation, weakening U.S. dollar, financial inflows to hedge inflation, metals for energy transition markets such as batteries and electric vehicles (EVs), and underinvestment in new oil supply.

The International Energy Agency (IEA) warned last year that if investment in oil were to stay at the 2020 levels over the next five years, it would reduce the previously expected level of oil supply in 2025 by nearly 9 million barrels per day (bpd).

This year, global upstream investments will stay low, just like they were in 2020, Wood Mackenzie said in December, expecting upstream oil and gas investment at a 15-year low of just US$300 billion, down by 30 percent from the pre-crisis level of investment in 2019.

“The world may be sleepwalking into a supply crunch, albeit beyond 2021. A recovery in oil demand back to over 100 million b/d by late 2022 increases risk of a material supply gap later this decade, triggering an upward spike in price,” said Simon Flowers, Chairman and Chief Analyst at WoodMac.

Then, “very easy monetary policy” and reflation trade could push oil prices as high as $100 a barrel next year, Amrita Sen, chief oil analyst at Energy Aspects, told Bloomberg earlier this month.

In the week to February 9, hedge funds increased bullish bets on 24 major commodity futures by 5 percent to a fresh high of 2.7 million lots, representing a nominal value of $143.7 billion, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said, commenting on the latest Commitments of Traders report.

The combined net long position—the difference between bullish and bearish bets—in Brent and WTI has now increased to the highest in 28 months, while the net long in the grain sector in agriculture is not far from the record set in August 2012, Hansen noted.

Post-pandemic growth, tightening supply, and continued demand for reflation hedges pushed the Bloomberg Commodity index to a 27-month high, Hansen said.

Although crude oil and other commodities have rallied and signals have emerged to support the call for a new supercycle, some analysts are cautious and say it is a little early to proclaim the beginning of the next commodity supercycle.

What we see in oil and commodities right now is a cyclical recovery, but a supercycle could be “two to three years away,” George Cheveley, portfolio manager at asset management company Ninety One, told Financial Times’ Natural Resources Editor Neil Hume.

This bull run is unlikely to turn into a supercycle for commodities, because while investment may be depressed, “the material is abundant” for many commodities, including crude oil, Ed Morse, managing director and global head of commodities research at Citigroup, told the Financial Post in an interview last week.

Commodities have certainly benefited from the optimism that post-COVID growth and stimulus packages will boost demand and prices, but it may be a little premature to trumpet the next decade-long across-the-board commodities supercycle.

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The $1.9-trillion COVID relief package proposed by President Joe Biden is set to stimulate the American economy, leading to a rise in U.S. oil demand by around 200,000 barrels per day (bpd) over 2021 and 2022, Reuters quoted a note from the investment bank as saying.

Goldman Sachs has been bullish on oil since the end of last year, seeing Brent Crude averaging $65 in 2021.

Apart from a stronger economy in the United States this year, the bank expects that the issue with the Iranian nuclear deal will not be resolved soon.

The Trump administration imposed sanctions on Iran’s oil exports in 2018, looking to cut off the oil sales of the Iranian regime, after the United States withdrew from the so-called Iranian nuclear deal.

President Biden, however, has pledged to offer Tehran a path back to diplomacy and a return to the nuclear deal. That is if Iran returns to full compliance with that agreement, hammered out while Biden was President Obama’s vice president.

President Biden’s initial talks with foreign counterparts and allies will include Iran and the current U.S. sanctions, White House Press Secretary Jen Psaki has said. This signals that the lifting of sanctions on Iran is not an immediate priority for the U.S. Administration.

“Delays in a full return of Iran production would reinforce our bullish oil outlook since we already forecast a tight 2022 crude market with low OPEC spare capacity,” Goldman Sachs analysts said in the note.

The U.S. Administration’s moratorium on all oil and gas leasing in the Arctic National Wildlife Refuge in Alaska, the revocation of the Presidential Permit for the Keystone XL pipeline, and the temporary ban on issuance of drilling permits on federal land and waters do not, on their own, mean that the oil market will tighten faster in 2021-2022 than previously expected, according to Goldman.

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