Quarterly Commodity Outlook – Markets move. Tankers don't.

In our previous outlook for the first quarter, we asked: “Will the dispersion continue?”  At this time, the Bloomberg Commodity Index (BCOM) performance was largely driven by the strong rally in precious metals, while other sectors lagged. In hindsight, the answer is “yes, the dispersion persists”. However, maybe not in the way many anticipated. In Q1 2026, one sector is driving the strong BCOM performance once again: Petroleum.

The development of the first months of 2026 highlights the need for diversification:

Diversification in a multi asset context: Q1 of 2026 once again highlights the role of commodities as an effective diversifier within a multi-asset portfolio. While other asset classes struggle, commodities outperformed. (see figure 2)

Diversification within a broad basket of commodities: This dispersion once again reinforces the case for investing across a broad basket of commodities. No single sector consistently outperforms at all times. With fundamentally different drivers across energy, metals, and agriculture, a broad commodity basket delivers natural diversification.

Looking into the quarter ahead, we expect the following:

Energy

We are now in the seventh week of the conflict in the Middle East. Rather than revisiting the recent chain of events, we focus on the present realities and their implications for crude oil and refined products. Approximately 12-13 million barrels per day of upstream production in the Middle East have been shut in (equivalent to roughly 12% of global supply), alongside around 6 million barrels per day of conflict-related refinery run cuts across the region and parts of Asia. These are tangible, daily supply losses that are steadily depleting global inventories. The scale of this disruption is staggering. Yet, a critical question remains: why haven’t oil futures surged higher but hover around USD100 per barrel?

Key factors keeping oil prices in check (for now):

1.    Market optimism about a short-lived conflict

Investors seem to stay confident that the conflict will be brief. Over the past decade, trading strategies that quickly discounted geopolitical risk premiums in oil prices have often paid off, reinforcing this belief.

2.    Elevated global oil inventories

Entering 2026, global oil inventories were relatively high, thanks to strong supply growth from both OPEC and non-OPEC producers. These stockpiles are now acting as a buffer. Notably, the volume of mostly sanctioned oil stored at sea has risen significantly since Q3 2025. The temporary de-sanctioning of Iranian and Russian oil has provided temporary relief, freeing up an estimated 4-5 million barrels per day (mb/d) for China and India.

3.    Workarounds for the Strait of Hormuz

Despite the challenges, some oil is still flowing out of the region. Approximately 6 -7 mb/d of oil exported from Saudi Arabia and the UAE via terminals at the Red Sea, that avoid the passway through Strait of Hormuz, while an additional 2 mb/d are leaving Iran via tankers.

4.    Strategic Petroleum Reserve (SPR) releases

Coordinated SPR releases, amounting to 2-2.5 million barrels per day, have also helped cushion the immediate impact of the supply shock.

While these factors have mitigated the perceived supply deficit for now, the situation is precarious. The de-sanctioned Russian and Iranian oil currently being shipped to India and China will likely be exhausted within 2-3 weeks. Compounding this, the 2 million barrels per day from Iran may soon be unable to leave the Strait of Hormuz due to a potential US naval blockade. Though there are still uncertainties surrounding the blockade’s enforcement.

In Asia, the physical oil market is already tightening, with physical prices exceeding near-dated oil futures. However, Western markets have yet to fully grasp the severity of the supply shock, as shipments from the Persian Gulf, that left before the crisis escalated, are only now arriving. Once these shipments are depleted, no new barrels from the Middle East will reach Western countries for at least 5-6 weeks, even if the Strait of Hormuz were to reopen tomorrow. This lag could lead to significant disruptions, including potential rationing.

While there are glimmers of hope, such as the first direct talks between the US and Iran since 1979, growing domestic opposition to the conflict in the US and China's potential intervention (after being quite silent so far). The window for an orderly resolution is narrowing. The supply shortfall is set to worsen in the coming weeks, and the physical loss of barrels will become increasingly evident. So far, the crisis has been felt primarily through a 30% rise in diesel and gasoline prices at the pump. But soon, the impact could escalate to more severe measures in Europe, such as rationing, especially in the case for Diesel and Kerosine, a significant share of these fuels is typically supplied to Europe (see Figure 3). Adding to Europe’s challenges is the fact that a substantial volume of Middle Eastern crude oil is usually being sent to Asia (as shown in Figure 3), where it is refined into products like diesel and kerosene. These refined products are then exported to Europe. Unfortunately, many of these exporting countries have now imposed restrictions on oil product exports, prioritizing their domestic markets over international supply as the crude oil supply as input is diminishing.

Even if the Strait of Hormuz reopens, it will take months for some producers to restore full production capacity. Saudi Arabia may recover quite quickly, but countries like Kuwait and Iraq are likely to face prolonged delays. While some Middle Eastern inventories can be drawn down in the interim, only Kuwait has built up meaningful reserves in recent weeks. Encouragingly, we’ve just learned that a second round of talks between the US and Iran is being planned in Islamabad, following the initial discussions last week. This is a positive development, but the urgency cannot be overstated. The Strait of Hormuz must reopen by the end of April, as the world is running out of time to avert a deeper crisis.

Precious metals

Precious metals have experienced one of the largest monthly selloffs in recent years with spot gold losing more than 10% and spot silver even 21% since the outbreak of the Middle East conflict. Gold traded more like a risk asset during the first two weeks of the war (correlation vs SPX of 0.7, vs long-term average of 0.15) due to a liquidity squeeze, USD strength and concerns around central bank gold selling. Downward pressure accelerated by mid-March when inflation fears from the energy price shock caused investors to price out rate cuts for the rest of the year (and even rate hikes for Europe). The trough of the precious metal selloff seems to have been reached in the last week of March.

With every further week of disrupted oil flows, markets will get increasingly concerned about slowing economic growth which counters the risk of higher interest rates and should act as a tailwind for gold in April. Elevated inflation expectations versus the looming risk of a growth-dampening consumption shock complicates the actions for central banks. Particularly, as an inflationary supply shock is hard to manage by central banks, and they may be forced to accommodate consumption even in the face of rising inflation. Hence, in this medium-term stagflation scenario we see a lot of tailwind for gold, with ETF inflows driving the upward momentum again. In the short-term however, the inflation shock can still dominate while at the same time some central banks might need to defend their currencies, which could temporarily lead to further gold selling pressure.

Over the long-run, the fiscal deficit in the US, which is now significantly growing (increase in military spending, uncertainty over tariff revenues) will come into focus again, driving the next leg higher in precious metals. On a further geopolitical angle, the war in the Middle East could lead to a re-ordering of strategic alignments (redirection of Middle East towards China/Asia) and weakening of the petrodollar system (Iran plans to levying transit tolls through the Strait of Hormuz payable in Bitcoin or Chinese yuan, a direct challenge to dollar dominance over global oil trade). This trend would certainly weaken the USD, probably also reduce the demand for US Treasuries and ultimately be bullish for precious metals.

For the next quarter, we stay constructive gold and cautious for white metals. Silver and PGMs (palladium, platinum) are affected to a much larger extent than gold from concerns around industrial demand, both as a result of record high metal prices as well as high energy prices potentially leading to a growth slowdown.

Industrial metals

We expect base metals to remain fragmented, with supply-constrained commodities continuing to outperform those that are more demand-sensitive. This view is reflected in our portfolio positioning, where we are underweight copper and zinc and overweight aluminium.

Aluminium is well supported as the market increasingly prices in the persistence of Middle East disruptions, capturing not only near-term impacts but also ongoing risks to logistics, feedstock availability and production. Gulf countries account for roughly 8-9% of global aluminium output. The region is heavily reliant on imported alumina, the primary feedstock for aluminium production. With the closure of the Strait of Hormuz constraining these imports, feedstock availability has tightened materially. As a result, smelters are being forced to curtail operations, with some already reducing run rates and others at risk of shutdowns. We estimate that around 1.5–2.5% of global aluminium supply could be offline for the rest of the year. Given that smelters typically require 6–9 months to ramp back up after being idled, supply disruptions are likely to persist even in the event of an immediate ceasefire. At the same time, demand would be expected to recover as recession risks recede and demand destruction could be averted. Beyond these near-term dynamics, we remain constructive on aluminium demand over the coming quarters. The metal stands to benefit from the ongoing electrification push, which is further reinforced by the current energy crisis, as well as substitution away from copper. Despite this supportive setup, aluminium prices have yet to fully reflect the tightening fundamentals. One reason is positioning: futures markets are already heavily long, which has likely tempered investors’ willingness to add further exposure. However, as supply disruptions become more visible in the physical market, where inventories are already thin, we would expect prices to adjust more meaningfully.

At the same time, we remain cautious on copper in the near term. Following the start of the conflict, copper initially traded in risk-off mode, reflecting concerns that weaker industrial activity and a potential global recession would weigh on demand. This is particularly relevant given that roughly 70% of copper consumption is tied to cyclical sectors. Even setting aside the impact of geopolitical tensions and elevated energy prices, there are signs of demand destruction at current price levels. Near-record-high copper prices have led to more price-sensitive buying behavior, particularly in China. China usually reduces purchases whenever copper prices reach record high levels and they have been postponing grid investment, which is very copper intense, in the last few months. Instead, they are stepping in opportunistically during price pullbacks, as seen when prices briefly declined to around $12,000 in mid-March. This softer demand backdrop is also reflected in inventory dynamics, with copper stocks on the LME having risen materially in recent weeks (see Figure 4).

For these reasons, we hold an underweight in copper for the moment. Over the medium term, we remain constructive on copper, supported by strong demand growth driven by electrification, while at the same time mine supply should be constrained over the next one to two years. Moreover, assuming the global economy avoids a recession and Chinese exports remain robust, growing in line with recent years, China will ultimately need to re-engage in the copper market to sustain the production of export-oriented goods.

Agriculture

Grains rallied double digits in the first quarter of 2026 and ended a long-lasting period of global declining prices. The main reason is the war in the middle east which puts fertilizer supply at risk, as countries like Qatar and Saudi Arabia are key suppliers of fertilizer inputs, as shown in figure 5 below. The decline in cocoa prices continued and also coffee prices came down significantly from last year’s high. Meanwhile, the livestock sector continued to increase on ongoing tight fundamentals.

Looking forward, our base case for grains and oilseed prices is an end to the rally as an eventual re-opening of the Strait of Hormuz will bring back the focus on fundamentals in Q2 2026, which are ample global supply and comfortable stock levels.

Key downside risks to our outlook include unfavourable weather conditions during the Northern Hemisphere planting and early growing season, which begins in the second quarter, as well as prolonged geopolitical disruptions impacting key grain inputs such as fertilizers and diesel prices. US corn exports remain strong, supported by competitive pricing and steady demand from key importers. At the same time attention is increasingly shifting towards South America’s second corn crop, which is expected to be record large and of solid quality. These offsetting dynamics are likely to keep corn prices broadly range-bound with limited upside absent weather stress. A key factor to monitor will be the potential shift in US planting decisions from corn to soybeans, given that soybeans require less fertilizer input. We remain cautious on soybeans. Record or near-record production in South America, particularly in Brazil, is expected to weigh on global prices, especially as harvest pressure persists into the second quarter. While Chinese demand for US soybeans remains an important swing factor, purchases have generally tracked expectations and currently lack a clear upside catalyst. Should Chinese demand shift more aggressively toward US origin (they usually buy from Brazil in first half of the year), this could provide temporary support, but the broader supply overhang keeps us biased to the downside. Soybean oil stands out with a more constructive outlook. Policy support tied to biofuels and renewable diesel continues to underpin demand, offering a floor to prices despite abundant soybean supply. We maintain a constructive view on soybean oil relative to the broader oilseed complex but expect it to come under pressure once crude oil prices decline, in the event of an easing of tensions in the Middle East. For wheat, the global balance sheet remains comfortable, and prices are likely to stay under pressure.

For soft commodities, we closely monitor the development of sugar prices. Prices came down significantly in the last months on abundant supply. However, tightness in refined oil products is incentivizing Brazilian producers to divert more sugarcane toward ethanol production, thereby tightening the global sugar export market. This could support prices from very low levels. We implement tactical trades around these offsetting forces. For the moment, we expect cocoa prices to have found a floor around USD 3,000 but closely monitor the development of El Niño and the Southern Oscillation (ENSO), which currently points to a strong El Niño towards the end of the year. A strong El Niño can impact the weather pattern on the west African coast, skewing risks for cocoa from a weather perspective to the upside later this year.

We continue to see value in livestock but have got more cautious. Feeder cattle prices have increased more than 76% since September 2024 and a nearby correction cannot be ruled out.

Conclusion

We have to wait what progress the current ceasefire talks yield. Investor sentiment remains optimistic. Historically, conflicts in the Middle East have had limited impact on global financial markets, as long as energy supplies remain uninterrupted. As a result, the primary focus for both commodity markets and the global economy is the resumption of normal naval traffic through the Strait of Hormuz. This is why we monitor tanker movements closely on a daily basis. Encouragingly, official tanker traffic has risen from an average of 1.5 tankers per day in March to 2.5–3 tankers per day in April. However, this still represents a staggering 90% reduction compared to normal traffic levels.

In the short term, oil price movements could go in either direction. If the Strait of Hormuz reopens, crude oil prices could retreat to USD80–85 per barrel. Conversely, if rationing becomes necessary to curb demand, prices could surge toward USD150 per barrel to incentivize demand destruction.

The long-term implications of these events, however, are more predictable: 1) Oil prices are likely to remain elevated for an extended period as global inventories and SPR will need to be replenished. Additionally, a portion of the geopolitical risk premium is expected to persist in oil prices. 2) The push toward electrification, particularly in oil-import-dependent regions such as Europe and China, is likely to gain further momentum. 3) Countries will increasingly prioritize building resilient domestic supply chains and ramping up local production. Where this isn’t feasible, we can expect a stronger emphasis on stockpiling and hoarding critical commodities. These developments reinforce our view that we are in the midst of a structural, long-term commodities bull cycle. Investors should consider commodities from a strategic perspective once again.