Oil led a broad-based rally in commodity prices, rising almost $5 a barrel as investors began to regain confidence after a spell of caution and volatility.

A host of investment banks are calling for a surge in commodity prices in the second half of the year, predicting that the global economy will pick up again as fears about Greece recede and Japan bounces back from the impact of the earthquake in March.

Goldman Sachs and Morgan Stanley, the two largest investment banks in the sector by revenues, added to the bullish chorus.

Hussein Allidina, head of commodities research at Morgan Stanley, predicted rising oil demand would reduce spare production capacity held by Opec, the producers’ cartel, and so drive up the risk premium in oil prices.

“We remain bullish oil, particularly in the second half, and expect inventory draws will prompt Opec to increase production, at the expense of spare capacity,” he said in a note to clients, reiterating a prediction for Brent crude to average $120 a barrel for the year.

ICE August Brent futures rose by $4.97 a barrel to hit $118.59, well above the level where they were trading before the International Energy Agency, a consuming countries’ group, shocked the market by announcing a release of strategic stocks.

Jeffrey Currie, head of commodities research at Goldman Sachs, said the impact of the emergency stock release on the global market was “likely to be relatively short-lived and more muted than it first seems. It does little to alter inventory levels and the trajectory of crude oil prices over the medium-term,” he added.

Goldman predicts Brent will trade at $120 in six months and $130 in a year.

The rally in oil was mirrored in other commodities. The benchmark gauge of raw materials prices, the Reuters-Jefferies CRB index, rose 1.8 per cent to its highest in three weeks.

“Demand growth will be sufficient to tighten key commodity markets over the next six to 12 months,” said Mr Currie, forecasting “further upside momentum” for commodities in the second half of the year.

Copper prices also rallied hard, aided by a strike at one of the world’s largest mines in Indonesia. The red metal gained 2.5 per cent to $9,747.50 on the London Metal Exchange, the highest price since April.

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