Opinions

In this 6 page report, we examine how commodity markets have historically responded to El Niño events, ahead of what climate forecasters expect could be one of the strongest ('Super') El Niño events on record developing over the second half of 2026. We looked at prices of grains, softs, metals & energy across the globe via last 25 year's data and concluded that our strongest conviction bets are on palm oil, coconut oil, rubber, coal, copper, aluminium, coffee & rice due to the onset of El Nino this summer. These conviction bets might pay off in the medium term i.e. 12 months on an average so that trade/investment horizon should be planned accordingly.

Since early Aug, Gold prices have moved from 4000 levels to current 4600 odd levels. First the weak NFP on 5th Aug & last week, increase in long end bond buybacks announced by US treasury which has led to massive dollar depreciation & gaining of debasement trade. We were earlier of the view that Gold might see an upswing from Sep when we expected weak US data to start arriving in earnest. But now we believe that Gold has started it’s next significant up move cycle going towards it’s previous lifetime high (LTH) of 5595 levels in the next 1 year. Persistent inflation, policy uncertainty & continued reserve diversification are other tailwinds for our view. On DXY itself, by attempting to hold the price of longer-duration securities from falling, US treasury has allowed Dollar as the release valve to encourage foreign inflows to finance the US’s current account. Unconventional policy choices can amplify questions around institutional reliability even if those policies are intended to aid market functioning. From US macro data point of view too, DXY looks headed lower for longer. Lower realised inflaiton in months ahead, changes in PCE calculations from Sep, recent slowdown in US economic data specially NFPs, housing and retail sales are some of the macro indicators which are indicating US economy might be slowing down. Add to this the falling demand for US bonds from both private foreign investors as well as foreign governments and we either US treasury itself resorting to more quasi QE measures like last week or Fed itself embarking on a full QE. Hence, we won’t be surprised to see DXY making new lows of sub 96 levels by CY26 end as US elections in early Nov might bring in Democrats in both houses leading to a policy paralysis. This implies significant upside for Gold from current levels.From a demand perspective, central bank’s demand should re-emerge once we move beyond the inflation pressures, while concerns around fiscal dominance and rising term premia for safe haven treasuries should continue to support the broader fiat currency debasement narrative. Amid a backdrop of elevated geopolitical risk and a scarcity of effective hedges, we think gold has a strong chance of testing it’s LTH of 5500 levels by Mar’27. Comex net speculative positioning & rate sensitive Gold ETFs demand are both indicating the bull run in Gold is here to stay. Technically the 200 DMA at 4500 & the 100 DMA at 4380 should hold as a strong support and every dip is now a buying opportunity. First stop for the current rally is 5000 levels and eventually 5600. Stop to this view is a weekly close below 4200 which is the 50 DMA.

On 8th Nov’2025, we had published a trade recommendation on long sugar when prevailing price was $14.10/lb for a target of $18/lb with a stop loss at $11.85/lb. Since then, Sugar prices have moved up to current levels of $16.6. We believe that the medium-term trend for sugar prices is north only as severe weather-driven crop damage in Europe, India, and Thailand, combined with Brazil prioritizing profitable ethanol production over sugar might only support sugar prices. In July itself Brazil stipulated increasing amount of ethanol that can be added to gasoline that led to increased demand from fermenters. We continue to recommend holding on to our long sugar view with a profit target of $18/lb and a trailing stop now at $15.85/lb.

While the world seems focussed on crude supply through Strait of Hormuz, it is the refined products situation which warrants immediate attention from policy makers. While crude supplies are still manageable through alternate supply routes, refined product’s supply chain is far more damaged than crude. Low diesel inventories, the ongoing outage at the Jazan refinery in Saudi Arabia, the extension of Russia’s diesel and gasoline export ban until the end of January 2027 & the fall in output from Chinese refineries are all pointing towards a higher for longer prices for refined crude products. China's June jet fuel exports plunged 64%, with gasoline exports down more than 90% during the same period. Russia's estimated 2025 oil refining capacity stood at around 5.4 million barrels a day (bpd) but now hovers around 3.8 mbpd in June'26 due to Ukranian attacks on Russian oil infrastructure. OECD commercial diesel stocks are 11% below seasonal norms a level typically associated with non-linear price responses. Globally, high-frequency visible refined products stocks are still low across major storage hubs: Fujairah (-62% YoY), Amsterdam-Rotterdam-Antwerp (-23% YoY) and Singapore (-14% YoY). Falling diesel exports from the Mideast and Russia have tightened the market so much that European diesel wholesale margin are at an all-time high of $65/bbl. Refiners in the Americas and Africa are running near full throttle, leaving global markets with little leeway to absorb worsening product shocks. We estimate a 6.5mb/d year-over-year decline in global runs currently. Average July runs reached the lowest seasonal level since Covid, given continuing attacks on refineries in the Middle East and Russia and low China runs. Diesel global exports are down by 2.6mbpd or almost 35% YoY. Jet fuel global exports have declined by 1.2mb/d year-over-year or by 56%. As a result we believe, persistent oil-product supply shortages will keep refining crack spreads elevated for longer.

Iran’s approach to the Strait of Hormuz is often framed in binary terms—either the waterway is kept open or closed. Increasingly, however, Iran appears to be pursuing a different strategy: not closing the strait but regulating its use. This strategy could be legally defensible. Working jointly with Oman, which shares jurisdiction over the Strait, Iran could argue that vessels transiting the strait should pay not for the right to pass, but for specific services rendered, such as navigational safety, vessel traffic management, security escorts, emergency response, and environmental protection. The key reference point is the United Nations Convention on the Law of the Sea (UNCLOS), the principal body of international law governing how ships navigate the world’s seas and oceans. UNCLOS draws a bright line between artificial canals and natural waterways. Operators of artificial canals such as the Suez Canal and the Panama Canal are entitled to levy transit tolls, because these are sovereign, man-made infrastructures. Natural international straits are governed differently. As a general rule, coastal states may not charge ships merely for exercising their right of passage. However, Article 26 of the UNCLOS explicitly permits coastal states to charge non-discriminatory fees for specific services rendered to ships. For e.g Turker charges almost $0.13 per barrel in Turkish straits, Denmark & Sweden too charge for similar services in the Danish strait. Even where a formal fee regime is absent, as in the Strait of Malacca, navigation safety and environmental protection are still supported via voluntary funding through the Aids to Navigation Fund. If Iran adopted a fee structure broadly comparable to that used in the Turkish Straits, a very large crude carrier (VLCC) could pay on the order of $260,000 for a round-trip transit. Applying the same schedule to a Q-Max LNG carrier could imply a charge of roughly $130,000, or about $0.02/MMBtu. A bilateral Iran-Oman transit authority which charges fees in USD should be palatable for US interests too. A transit authority that denominates fees in dollars does something almost no one in Washington would expect from Tehran: It actively reinforces petrodollar supremacy at the very moment when dollar-denominated energy trade faces its greatest geopolitical test in 50 years. Saudi Arabia has flirted with yuan oil sales. Russia has settled exports in rubles after its invasion of Ukraine. China has methodically built alternative settlement infrastructure. Washington’s role in the establishment of a transit authority would be as guarantor, in exchange for the dollar denomination and the petrodollar reinforcement it provides. The transit authority doesn’t just become a reparations mechanism but a regional security architecture. Iran stops being the arsonist and gains a financial stake in keeping the region stable—a raison d’être to behave properly. The GCC gets contractual certainty over its export routes. Washington gets petrodollar reinforcement dressed as a peace dividend. Beijing gets energy supply security even if it does not get yuan internationalization. Every one gets a win in the above proposed structure.

Last week we have seen Brent inching north of $85 levels post the increase in escalations in Iran conflict. The latest escalation stems from Iran’s attempt to redefine the terms under which commercial vessels transit the Strait. Tehran appears intent on establishing authority over navigation itself through mandatory transit protocols and transit fees. Oman responded by opening a US-backed corridor along its coast, enabling stranded vessels to leave. When several ships attempted to transit without complying with Iran’s requirements, Iran struck commercial vessels off the Omani coast to reinforce its position. The US responded by reinstating sanctions on Iranian oil exports, resuming a blockade of Iranian ports & daily aerial attacks on Iran in the night. We believe crude oil and refined product net exports including the effect of rerouting stood at 50% and 20% of pre-war levels during the first week of the new phase. Aggregate total oil net exports at 45% of pre-war levels (including rerouting) so far in this new phase compare with averages of 31% in the initial escalation phase and 35% in the negotiation phase, indicating that there has been some progress in loosening Iran's hold over the strait. In absolute terms, middle east export numbers stood at 8.4 mb/d for crude oil and 1.0 mb/d for refined products. We see larger issue with refined product's supply than crude itself. Right now the market is short about 2.5 mbd of Middle East product supply. Add to that the Russian refinery issues where refinery runs have slipped to 3.3 mbd from 3.8 mbd last week, and are 2.0 mbd below last year’s levels, further tightening an already fragile global product balance. The strain is most visible in diesel: exports are now close to zero, down nearly 800 kbd from a year ago. Last week we read the bipartisan Russia sanctions bill which if gets passed, might further adversely impact the refined product balance. To us the shock is increasingly becoming a refining story rather than simply a crude supply story. On the larger picture, do we believe the current conflict is a forever war? We don't think so. We continue to believe both sides are negotiating rather than seeking a prolonged confrontation. Iran’s main objective is no longer to restore the status quo ante. Control over Hormuz offers both strategic deterrence and a recurring source of economic leverage. But Tehran risks overplaying its hand: If it continues to squeeze, it will lose strategic leverage — not immediately, but over the next five years or so as its neighbours build more bypass routes. By striking oil tankers off the coast of Oman, it has convinced every one of the Persian Gulf states, as well as oil importers including deep-pocketed nations such as China and Japan, that the only way to guarantee future oil flows is to invest billions of dollars in new pipeline capacity. We continue to believe in the range of 75-85 for Brent in REMCY26 & Brent falling gradually to 50 levels by H1CY27 and possibly sub 50 too in H2CY27 as alternate supply routes come online & global demand remains weak.