Energy markets have not been kind to investors in recent years. Since the peak of oil prices (US$107 per barrel) in June 2014, prices have tumbled more than 70% before a rebound in February. The global slowdown needs a rejig of supply-demand dynamics in order to stabilise oil prices.
For many assets, excess liquidity in the post-crisis era and the prodigious, capital-driven Chinese growth streak, have led prices to climb to new highs. But a global downturn is quickly causing pro-cyclical assets, like oil, to make sharp corrections that are subject to rumour-prone production curbs.
“The biggest hurdle for investing in commodity-linked structured products has been weak performance particularly around oil structures in the past few years,” admits Isaac Wong, head of the private investor product group, Asia Pacific ex-Japan at Goldman Sachs.
The effect of a slowdown has been a year-long dovish Fed, coupled with populist developments that have caught many off guard. Many commodity players will have taken chunky positions on gold in an effort to acquire a sense of protection in the fog of unfamiliar market conditions.
But Wong ascribes Goldman Sachs’ ability to gain an edge by remaining committed to the business holistically, rather than purely chasing flows. HNWIs in Asia tend to hold instruments until maturity, in the hope that markets will turn in their favour. Rather than let clients test fate, Goldman Sachs proactively engaged them to restructure positions to capitalise on an oil rebound.
The situation looks favourable for those who have heeded Goldman Sachs’ call. At the point of print, sources report that the Sauds have finally given way to an OPEC production cut sending oil prices surging by up to 8%. And when oil prices climb back to the US$50-60 range, clients will have more reason to thank Goldman Sachs, this year’s Best Provider of Commodity-linked Structured Products.