Merrills on commodities

Investors should reassess negative stance on commodities - MerrillLONDON (AFX) - Investors appear to have "fallen out of love with commodities" although recent more positive views on global growth prospects suggests they would be wise to reassess their stance on the sector, said Merrill Lynch.In its monthly Survey of Fund Managers, Merrill said a growing number of investors are starting to believe the global economy could remain stronger for longer."For the past two years, survey participants have described the global economy as being between its mid-cycle and late-cycle phases. However, investors appear to have begun to recalibrate their positions," said the bank. It added that with the majority now saying the global economy is back in a mid-cycle phase, they would do well to consider what impact continued global growth will have on commodity prices."Portfolio managers would be wise to reassess a bearish stance on the sector, with oil prices set to rise steadily and soft commodities starting to be impacted by the early stages of a bio-fuels-led boom," said Francisco Blanch, head of the bank's commodities research in London.In December last year, Merrill lowered its 2007 average oil price forecast to 60 usd a barrel, saying it expected supply growth from non-OPEC producers would expand significantly against a backdrop of falling oil demand.However, it also raised its 2008 average oil price forecast."We were bearish on oil at the start of the year because of ample stocks. But now we're starting to asses demand and we think the market will tighten up. For next year we think oil will be higher," said Blanch.Yesterday, oil prices surged above 59 usd a barrel after the International Energy Agency upped its forecast for global oil demand this year, citing continued stellar demand growth from China."Its an underlying demand growth story. Chinese growth is phenomenal," said Blanch. He added that while he still believes supply in the first half of the year will rise, boosted by non-OPEC production, he thinks strong underlying demand will keep oil prices on an upward trend.