FICC | Commodities

A confluence of both supply and demand factors contributed to the natural gas rally over the past few months. This trend could continue for a while longer. However, cyclical and structural factors ultimately argue against a sustained increase in prices.

Special Report

Odds are rising that the trade-weighted US dollar will roll over and depreciate sometime next year. However, USD weakness will not be due to stronger ex-US growth. Rather, economic conditions in China and Europe will continue to underwhelm. Therefore, a weaker US dollar will not boost prices of cyclical commodities. That said, when we change our view on the US dollar, we will upgrade our stance on EM financial markets – especially EM domestic bonds.

President Trump’s victory has injected a dose of uncertainty into the outlook for commodity markets. Most notably, the new administration’s energy policies are likely to be part of the early agenda. Changes in US domestic and foreign policies will also impact the outlooks for gold and industrial metals. In this Strategy Report we highlight the likely consequence of Trump’s election on the major commodities.

Special Report

We expect a copper supply-demand deficit to emerge in 2026 and widen into the end of the decade. This will provide a tailwind for copper prices over a long-term horizon. That said, we believe a better opportunity to position for a structural uptrend in copper prices will arise over the coming six-to-nine months.

It is premature to bet on a copper demand acceleration over the coming months. Rather, copper prices are vulnerable to the downside. We believe that a better opportunity to turn bullish on copper prices and copper mining stocks will emerge in the coming six-to-nine months.

Special Report

China's steel sector is behind on its environmental targets. This shortfall reflects EAF production challenges facing Chinese steelmakers. Over the near term, a reduction in steel produced by high-carbon emitting blast furnaces is the most realistic path for China to approach its 2025 green steel targets. This bodes ill for iron ore demand and prices over the coming year. On a longer-term basis, the challenges that are currently limiting green steel output would need to be addressed for China to meet its 2030 environmental targets. As and when the sector overcomes these limitations, the green steel transition will boost demand for steel scrap and high-grade iron ore at the expense of low-grade iron ore.

On net, the upside risks to crude prices have increased. These dynamics are likely to produce volatility over the near term. Elevated geopolitical risks could sustain upward pressure on prices over the coming months. Nevertheless, the conditions are not yet in place to warrant a change to our cyclical view.

US crude oil output has not peaked. It will continue to increase. A continued expansion of US production, even if it is moderate, along with a possible increase in OPEC+ output, will lead to an oversupplied oil market. Moreover, we expect the demand headwind from the business cycle slowdown to weigh on crude prices. Over a 6-to-12-month horizon, the path of least resistance for oil prices is to the downside.

A bearish chill has engulfed oil markets. Earlier this week, Brent dropped to a near three-year low, falling below the trading range that had prevailed over the prior 18 months. In this Strategy Insight we detail why we do not believe that the worst has passed for oil markets. Rather, prices are likely to drop further over a six-to-nine-month horizon.

Central bank gold buying is likely to remain a tailwind for the yellow metal, supporting a continuation of the rally over the coming years. We maintain a long strategic position in COMEX gold and recommend an overweight to the yellow metal within commodity portfolios.