Global Commodities: 2026 Outlook – Supply-driven crocodile cycle

[MUSIC PLAYING] Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Shikanova, and I catch up your Morgan Global Commodity Research. Today, we would like to discuss our outlook on the Commodity Sector for 2026. And then joined by my colleagues, Greg Shiro, who heads our nettles research team, and Dr. Tim Boards, who covers Global Natural Gas Markets. Greg, or Tara, welcome. So taking a look at the Commodity's performance. So last year, it was pretty much a flat performance, but Commodity's index this year is up by about 12% year today as well as an energy and agriculture offset by gains in metals. So being long metals, both industrial metals and precious metals and short oil has proven the right strategy in 2025, which was the theme of our 2025 Global Commodity's outlook. The title actually was bullish on gold for third year, supply constrained base metals, or for better value than our supply to oil. So if you take a closer look exactly what the returns were this year, the become precious metals, some index has searched by 62% year today. Base metals are up about 11%. In the case of oil, oil has declined by about 60%. But just for the raw yields, it's down about 9%. And then in the case of the agricultural lifestyle, in the index, they have been broadly flat year today. So this was the picture for this year, but let's take a look in 2026. So our team is forecasting that the index will exhibit broadly flat returns next year, continuity coins and energy are balanced by further price increases in metals and agriculture. So let's discuss the sector in order of our preference. So Greg, you are number one. So we maintain our bullish year, our multi-year bullish outlook on gold for a fourth year in a row. So the first time we put it by recommendation was November 2022. Gold was trading at $1,700 at that time. So look each 2026. Maybe you can dip a little bit into 2027. So what is the price target? What is the rationale behind the call? And your outlook for the rest of the precious metals conflicts as well, please. Yeah, thank you, Natasha. As you said, still quite bullish, not to bury the lead. We see prices of gold rising towards $5,000 per ounce by the end of 2026, continuing albeit with a little bit less upside velocity as we go into 2027, expecting something around 5,400 for gold ending 2027. What's behind it is still a market here where supply in elasticity rules. We are expecting a bit stronger mine supply growth, but it's not doing nothing to offset the continued structural increase that we see in demand. We're expecting continued robust central bank demand, something around 755 tons as we look to 2026. Well, that's off the recent peaks of above 1,000 tons. That is simply just because we are trading at $4,000 and above. And so you don't need to buy as many tons of gold to get the same movement in desired reserve share of gold. On top of that, we still think there's a litany of supportive factors expanding gold's ownership pool. What do we see beyond this? Two Fed cuts into early 2026, broader investor anxiety, everything from US debt sustainability, policy uncertainty, financial easing globally. We think all of this continues to drive significant inflows into ETFs. What that really leaves is a market that is still averaging, something around nearly 590 tons of investor and central bank demand a quarter as we go into 2026. What we need and what the data shows back to 2017 is that you basically just need 350 tons for gold to stay flat quarter over quarter. And this is an environment that we still think skews risk toward reaching our upside targets even quicker with sharper inflows from the investor community. Beyond that, still in an environment with gold rallying where silver is supportive, both silver and platinum have jumped very recently. We still think that silver is supported up here towards $58 pounds. It may have gotten a bit of head of itself now. But both of these are still under scrutiny with section 232 investigations outstanding. That is limiting liquidity and leaves them in an environment where there's potential bullish upside for both silver and PGMs as we looked early 2026. Thank you, Greg. OK, so second question is again for you, Greg. Industrial methods remain second and long-hour preferred longs, particularly going into the first half of next years. Acute supply disruptions continue to underpin and bullish outlook on copper. Could you please walk us through your price targets and the logic behind the view? Yeah, thanks, Natasha. Very convicted in our bullish copper view into the first half of 26. And that really drives the attitude across the whole complex. What we see in copper here is that supply disruptions, limited supply, constraint supply, we're only expecting something around 1.4% mine supply growth next year after flat mine supply growth this year in copper is providing the necessary fuel and the foundation of this bullish outlook for the coming quarters is really built on severely dislocated global inventory with the US frontloading imports throughout 2025 and that continued pull of refined copper into the US, which is really straining ex-US copper balances as we look to the coming couple of quarters. What we've seen is copper entering a higher regime and breaking out over the course of this week. We ultimately see an upside on an average price forecast in the second quarter of 2026 of 12 and a half thousand dollars. I do think there's upside risks to this. I do think we are entering the end of the beginning of this bullish setup in copper. What we saw this week was cancellation of about 50 KT of copper off of the LME exchange. That has dropped on warrant inventories on the LME below 100 KT. What we see is we are entering the critically low levels. We're expecting a 330 KMT deficit in refined copper in 2026 and expecting that these LME stocks are going to continue to dwindle and that opens up a very bullish environment where essentially we see both LME spreads or backwardation as well as higher LME prices attempting to essentially reverse this open arbitrage to the US to allow and incentivize that flow of almost 600 KMT that has been built in the US here to date to go to other regions where it's more immediately needed. And we really think we're at the precipice of this and are still quite convicted as we look into the first half and over 2026 in copper. Within that view, outside of copper, we do think aluminum feels that magnetism higher of copper in the first half, pulling up towards around $3,000 per metric ton. Though as we go forward in aluminum, the supply cycle is much quicker than copper. And we are seeing Indonesian supply growth beginning to weigh on aluminum fundamentals and prices. But that's still a later in our forecast, a late 2026 into 27 in the very near term still quite supportive of aluminum fundamentals here. Turning back to Unitasha, in third place this year, we have the agriculture sector where we're expecting returns next year are largely to be mixed across the complex. What are the forecasts for the main aggregate commodities? - Thank you, Greg. And unfortunately, Tracy is not able to be with us here today. She is on maternity leave, but you absolutely correct in a third place. We have the agri sector with mixed expected returns. We remain bullish on corn and wheat and cigarette our upside in ice number two, cotton and ice number 11 sugar. But we remain a retainable bearish outlook on soybeans. Interestingly, currently we see no clear signs of shortages or supply side stress and any of the agricultural commodities except in livestock sector and to some extent, cocoa markets over the coming seasons. So, Otar, next question is for you. So our view on US natural gas shifted from neutral, which we have been in that of 2024 in our outlook for 2025 to our trade and bearish. So the 2022 price expected to average $3.74 per MBTU. And this is bearish relative to the current forward curve. As we forecast strong production grows driven in part by the Permine Associated Gas Production. That's the forecast that is coming from the oil side of the balances. - Hi Natasha, thank you for having me. - Yes, so our price forecast is below forward curve, which is about $4.4 per MBTU for calendar year 2026. After the recent rally over the last few weeks, as December way there is folding out about two standard deviation colder than 10 year normal. So what drives our price forecast is, what we think two key variables in the US natural gas market over the next couple of years. It's the LNG feed gas demand and the supply makes to meet this demand. So as you mentioned, and considering our oil forecast of about 400 KBD growth in US liquids production and primarily in Permian, which is also coupled with gas infrastructure expansions in the region. We think that the increase in associated gas production that will come with these liquids and increase in the gas take away capacities will be sufficient to meet the rising demand in 2026 and will limit the need for gas price driven production and essentially keeping US gas prices in moderation. Usual disclaimer here is that assuming normal weather conditions, of course. We see this starting to change in late 2026, early 2027, as the domestic and LNG export demand warrants a gas price driven production to accelerate. And we expect prices to increase in Q426, Q127 to about $4 to $4.15 per MBTU. Thank you, Tar. And if we take a look at the European natural gas, though it's not a part of the commodities index the European natural gas market is also facing lower prices and structurally reduce storage levels as destination flexible US LNG becomes the marginal source of supply. So can you please walk us through your TTF targets? Yes, so the rising US LNG exports is an important driver for natural gas prices not only in the US, but globally. So we see about 400 BCM a year of LNG export projects under construction out of which approximately half is in the US. And so in total terms, this is about 2/3 of current market size. And we think it leads to oversupply in late 2020s. We also think that the rise of readily available and mostly destination flexible US LNG, as you mentioned, reduces the strategic importance of storages globally and especially in Europe. As US will effectively become a global storage hub, marginal supplier, and essentially a pricing point for global natural gas. So we think the new normal for European storage levels are near 83%, 84% ahead of winters compared to more than 90% historically. And prices to continue trending lower as we've been observing throughout 2025. So we expect 2027 prices to materialize about 4 euro per megawatt hour lower than 2026 prices, which is well below current spread of about 1.2, 1.3 euros per megawatt hour. And lastly, quickly on Russian gas. So it's hard to forecast the timing, but we still firmly believe that even when a ceasefire is reached between Russia and Ukraine, this will lead to the resumption of Ukrainian gas transit and partial return of Russian pipeline gas to the continent, which will add to the oversupplied bearish narrative. - Thanks, Otar. So that leaves oil, which for the second year in a row, takes our last spot, Natasha. Can you walk us through what's driving our continued bearish outlook on crude? - Well, thank you, Greg. Yes, you're absolutely correct. So for, we maintain a bearish outlook on oil for a second year in a row. So pulling sharp decline in 2025. So we started with $80, and actually last year, oil averaged $80, but this year, the averages will be probably around 67. We project oil prices to fall further, averaging about $10 lowers, $58 for Brent in 2026 and slightly lower in 2027. So our message to the market, Greg, has remained consistent since mid-2023. So while oil demand is pretty good, supply is simply too abundant. So taking a look at the demand, it defied all the widespread bearish sentiment. The global oil demand is good. But if you take a look at global oil supply, especially our projections for 2026, supply is forecast to outpace demand, expanding at three times the rate of demand in Boston 2025 and 2026 before moderating slightly in 2027. So as a result of that, we have global oil inventory surging, almost 1.5 million barrels per day a year today. That's what we're tracking. The bulk of this bill, about 1 million barrels per day, is oil and water and stocks in China. But we do not discriminate against the locations of the stocks and to treat them as a net additions to global supply. That will carry, importantly, into 2026 and put downward pressure on Brent prices. However, just looking at the full magnitude of this market imbalances that we're forecasting, we believe that they are unlikely to materialize in practice. They're just too big and because of that, we do believe that there will be adjustments that will take place on both the supply side and the demand sides. However, the greatest burden of rebalancing will almost certainly fall on the supply side. So the market will find equilibrium through a combination of rising demand. When the prices go down, demand goes up usually. It makes a voluntary and involuntary production cuts. And because of that, we maintain now a price forecast of $58 Brent. This is for the second year in the role we have been sitting on this price forecast that we introduce our 2027 forecast of $57 for the Brent price with no alleging that considerable effort will be required to stabilize prices at this levels. Just a quick word on the refining margins expected to remain elevated through both 2026 and 2027 supported by the strong demand and ongoing supply constraints which are now with you. A very big part of that is actually structural. - Thanks, Natasha. So what I'm hearing here is quite an interesting bifurcation. Metals, both precious and industrial, have outperformed energy in both 2024 and 25. And when we look to next year, we're expecting a similar trend, which is likely to carry over even into 2027. How do you explain this divergence, Natasha? What are the practical implications of it as well? - Yes, Greg. So this is a very interesting dichotomy you're pointing out because if you take historically and we have data going back 50 years, commodity prices have experienced repeated and high synchronized cycles across various markets. So why is that? So if you take a look at the energy markets and the metals markets, both precious and industrial metals are pretty much moving in very, very synchronized fashion and the main reason for that is because their performance of those commodities is tied to or has been tied to global economic trends to shifts and demand. So what is interesting is that this co-movement as you pointed out, broke down in 2024. That time we just mentioned that because we put this in the title of our report, yes. But we did not see the trend, yes. And so the co-movement broke down in 2024, energy prices reset lowers, you pointed out while metal prices particularly gold silver, PGM, copper and aluminum surge, marking a very sharp divergence primarily driven by supply dynamics. So we believe that this dichotomy is likely to persist through 2027. So in essence, what we're saying is that for the last 50 years, the cyclicality and the synchronization of the commodity markets was driven by demand. But since 2024 actually supply is the main part that the market should be paying attention because this divergence is due to the supply factors. So what we're calling this cycle, it's the crocodile cycle because you had this synchronized movement and now the mouse of the crocodile open in 2024 and it's gaping now more and more and more going into 2026 and 2027. The practical term says you pointed out that's interesting because for example, if you take the commodities performance, they have been a significant disinflationary force in 2023 and in 2024. But in 2025, they have actually contributed to higher headline inflation driven primarily by surging prices and specific foods, metals categories, but also piped gas and electricity. But what is interesting is that commodities added to the inflation this year despite the fact that oil prices fell by 16%. So this concludes our podcast and to sum it up, we believe that the become index will remain largely stable in 2026. After rising, almost 12% in 2025. But what we're advising the market is not to pay that much attention on the performance of the commodity index as a whole, but actually to take a closer look at the subcomponents. So our view for a second year in a row remains that energy markets will continue on the performing while the metals, both precious metals and industrial metals will continue to outperform substantially in both 2026 and 2027, opening this gap in the performance of the commodity singers, the so-called crocodile cycle. So Greg Othard, thank you so much for joining me today. And thank you all to listening to the commodity index edition at JP Morgan's at any rate podcast. We look forward to continue the conversation next week. This communication is provided for information purposes only. Please refer to JP Morgan Research Reports related to its content for more information, including important disclosures. 2025, JP Morgan Chasing Company, all rights reserved. This episode was recorded on December 5, 2025.