Tensions Shake Oil, Gas, and Broader Commodity Trade

Key Moments

Escalating Middle East Risk Lifts Oil and Gas Prices

Oil prices surged as markets focused on the growing likelihood of imminent US action against Iran. ICE Brent futures gained 4.35% in the previous session, closing above $70/bbl, with the momentum continuing in early trading.

Talks in Geneva between the US and Iran were described as constructive, but US Vice President JD Vance stated that Iran is ignoring key American demands. In addition, reports indicated that any potential US military operation would likely extend over several weeks, in contrast to the shorter strikes carried out last year on Iranian nuclear facilities.

Investor anxiety increased further after Iran temporarily closed part of the Strait of Hormuz on Tuesday during military exercises, heightening concerns over a critical chokepoint for global energy flows.

Complex Path to De-escalation

With prospects for a diplomatic agreement appearing to fade, options for de-escalation are becoming more limited, particularly given the recent US military build-up in the region. If tensions cannot be reduced, market participants are focused on the scale and nature of any US response and how Iran might react.

For oil, the key risk is not only to Iranian crude exports but to wider Persian Gulf flows, due to the potential for disruption to traffic through the Strait of Hormuz.

Any prolonged disruption around this corridor would have implications across crude and refined products markets.

Russia-Ukraine Talks Offer Little Relief for Oil Traders

Separate discussions in Geneva between Russia and Ukraine yielded limited progress. A second day of meetings ended after roughly 90 minutes without a breakthrough. While few details emerged, Ukrainian President Volodymyr Zelenskiy said that Russia is attempting to prolong the negotiations.

For oil traders, any substantive advance in these talks could eventually raise the possibility of an easing in US sanctions. However, developments so far indicate that such an outcome remains distant.

Brent Curve Signals Tighter Market Than Balance Sheets Suggest

The structure of the ICE Brent forward curve continues to indicate a tighter market than many analysts, including the author, had anticipated. The curve remains in backwardation through 2026 and 2027.

While geopolitical uncertainty can support the front of the curve, this alone does not fully explain backwardation that extends through late 2027 and into early 2028. Internal balance projections show a substantial surplus in the first half of this year, which would typically pressure near-dated contracts.

However, a large portion of global supply is under sanctions, and a rising number of buyers appear unwilling to handle these barrels. Indian refiners are described as increasingly reluctant to take Russian oil. As a result, the effective availability of crude in the physical market appears tighter than headline balance sheets indicate.

Angolan Exports Set to Decline

A preliminary loading schedule points to a drop in Angolan crude exports to 896k b/d in April, compared with a final March program of 1.12m b/d. The final April schedule is expected later this month.

European Gas Rallies on LNG Transit Concerns

European natural gas benchmark TTF also advanced, settling almost 5.6% higher as tensions in the Middle East escalated. The key concern for gas markets is the potential impact on LNG shipments traversing the Strait of Hormuz.

Qatar is the second-largest LNG exporter and shipped around 104bcm of LNG in 2025, representing 19% of global LNG trade. Smaller volumes also originate from Oman and the UAE, which likewise rely on regional shipping routes.

These emerging supply risks are coinciding with tightening EU gas inventories, which are moving closer to 30% of capacity.

EU Carbon Market Hit by Heavy Fund Liquidation

EU carbon allowances (EUAs) have suffered a pronounced sell-off over the past month. Prices dropped below EUR70/t earlier this week after trading above EUR90/t in mid-January.

Investment funds have sharply reduced their net long exposure. Over the most recent reporting week, funds sold 11.6k contracts, cutting their net long to 82.4k contracts, down from 126k contracts in mid-January.

Concerns over possible policy changes related to the EU Emissions Trading System (EU ETS) have driven aggressive fund selling. This wave of liquidation has amplified the downward price move, particularly as funds entered 2026 with a substantial long position.

Metals: Copper Rebounds but Inventory Overhang Persists

Copper prices on the LME recovered some earlier losses, moving back toward $13,000/t, although trading activity remained subdued amid the Lunar New Year holiday.

The supply backdrop remains heavy. Readily available inventories in LME-monitored warehouses increased for the 26th consecutive day. In addition, combined stocks across Shanghai, the LME, and Comex climbed back above one million tonnes, the highest level since 2003.

This inventory build continues to weigh on sentiment despite the latest price uptick. Short-term price moves are likely to stay volatile, with elevated stocks limiting upside. A more sustained advance would likely require evidence of drawdowns or firmer demand indicators once Asian markets are fully active again.

Agriculture: Cocoa Under Pressure on Softer Demand

Cocoa prices extended their recent slide, with London cocoa falling 7% to close at the lowest level since May 2023. The market has now recorded nine consecutive daily declines, amounting to a 26% drop over that period.

Weaker demand and improving crop prospects in West Africa have been key drivers of the downturn. Buyers in major producing countries, including Ivory Coast and Ghana, continue to delay purchases, even after Ghana cut its farmgate price by nearly 30% to bring it closer in line with international levels.

There are indications that Ivory Coast may also consider reducing its farmgate price, which would add another dimension to the evolving supply-demand dynamics in the cocoa market.