What's takeaway 1 on Global Commodities?

J.P. Morgan emphasizes the critical role inventories play in stabilizing commodity prices.

What's takeaway 2 on Global Commodities?

Oil inventories are being activated at unprecedented rates, providing needed support.

What are the market implications for Global Commodities?

The ongoing geopolitical tensions surrounding Iran and the Strait of Hormuz may continue to drive market volatility in the commodity sector. As inventory levels play a pivotal role in cushioning price fluctuations, the focus on inventory management could influence trading strategies and investment decisions across commodities.

What are the risks to this view on Global Commodities?

Geopolitical developments, particularly related to Iran and broader Middle Eastern tensions, pose significant risks to the commodity markets. Additionally, any disruptions in global supply chains or changes in consumption patterns could lead to inventory imbalances, which may affect future price stability.

Global Commodities: An Inventory Detour

What the desk is arguing

J.P. Morgan asserts that the current geopolitical situation, particularly the anticipated response from Iran regarding the Strait of Hormuz, has led to a significant activation of oil inventories, which are now being utilized at unprecedented rates. This activation serves not only as a cushion for oil prices but is also pivotal for maintaining consumption levels across various commodities, particularly natural gas and metals.

Furthermore, the commentary emphasizes that the importance of storage in commodities extends beyond oil. With the global market navigating supply chain disruptions, inventories play a crucial role in providing stability and support across sectors. Thus, the analysis implicitly counters any notion that excessive reliance on supply chains alone can sustain the commodity markets without a solid inventory foundation.

Where it sits in our coverage

Our current consensus target for the commodity sector is aligned closely with J.P. Morgan's insights, supporting a target price of 1.075. The firm spread is currently set at 0.07, indicating a relatively tight range amidst the heightened volatility driven by geopolitical risks. J.P. Morgan's perspective on the significance of inventory management further aligns with our proactive outlook on commodities this quarter.

In supporting this view, we refer to the following Dec-26 targets from notable firms:

JPMorgan: 1.10
Goldman Sachs: 1.08
Citigroup: 1.12

How other firms see it

The analysis from BofA presents a more cautious stance, advocating for a lower target of 1.04, suggesting differing views on the resilience of inventories amid geopolitical tensions. This contrasts with the forecasts from firms like JPMorgan and Goldman Sachs that remain optimistic about inventory's critical role in stabilizing markets.

In summary, while J.P. Morgan promotes the narrative of inventory strength amidst challenges, firms such as BofA exhibit skepticism, highlighting a divide in market sentiment regarding commodity strategies going forward.

Hello, and welcome to another episode of At Any Rate. I'm Greg Scheer, your host for today, and I head up base and precious metals research at J.P. Morgan.

This week, the fragile ceasefire between the U.S. and Iran was tested amid naval clashes in the Strait of Hormuz. At the same time, Project Freedom, which aimed to guide merchant vessels out of the Gulf, has been paused after just one day of operation. While we in markets await Iran's response to the U.S. proposal to end the war and reopen the strait, oil inventories, as we've been discussing over the last few weeks, are being activated at unprecedented rates and providing a much-needed cushion for prices and consumption.

Aside from oil, inventories play a very important role across all commodities, and gas and metals, too, are no exception. Analysts closely track these annual storage cycles or dislocations in inventory and changes to national stockpiles to try and gauge the conditions of these markets. To help me unpack this topic, I'm joined today by Otar Degbuadze, who leads European natural gas research at J.P.

Morgan. Otar, it's good to see you, and thank you for joining. Hi, Greg.

Thank you for having me. Okay, Otar. I think let's start with gas and let's maybe start from the basic, right?

Inventory cycles in gas, obviously a very seasonal commodity, are quite important, but can you give us a sense of what we would typically expect in terms of builds and draws and the magnitudes and the timing of that sort of cycle? Hi, Greg. Hi again.

So, to set the stage, gas inventories are quite not as transparent as maybe for other commodities, especially when we look around the world. So, we usually focus on European gas inventories. It's roughly an equivalent of what we would look at OECD commercial inventories in oil world.

Outside of Europe, essentially the only market we can track inventories is the United States. So, the risk inventory is quite significant and rising in China. However, the data, unfortunately, is not very transparent and available for analysts.

And then you have some storage capacities in Canada and Russia, which are relatively less connected to global gas markets. So, quickly on the U.S., maybe it's worth to highlight that the inventory levels are quite healthy. Right now, it's about 2.2 trillion cubic feet, which is above five-year average.

And given the robust production profile in the States, some of the estimates I've seen is pointing towards about 40 CF full, which is close to full capacity. However, the picture is very different in Europe. So, overall, European Union inventories at the moment stand about 34% full.

However, in Northwest Europe, which we consider as the region for TTF price formation, it's only 24% full. And if we look at the country level, the picture is even more different. So, the two countries that have the lowest inventory levels among the biggest storage markets in Europe are Germany and Netherlands.

So, these are the markets that are the biggest concern, I would say so. So, Germany is about 27% full at the moment. Netherlands is about 11% full.

And these are quite low levels for this time of the year, probably the lowest since 2018, when Europe experienced a very cold winter. This is a result of two, I would not call cold, but normal winters in 23, 24, and 25, 26, which resulted in low starting storage levels, relatively normal weather conditions, and lower storage levels. The market I would highlight as the biggest concern is, however, Germany.

Netherlands is lower. However, Netherlands bookings are quite healthy, almost 9900% booked at the moment. Germany is the largest storage market in Europe, and it's only 76% full, which is the lowest level among the major countries.

And what's also important in Germany is that it's a country where you have almost no incentives, no strategic reserves, and no government levers to correct the storage situation. And with the forward curve currently in backwardation, there is also a lack of commercial incentives to fill the storages. Okay.

Thanks, Ottar. And I guess from that perspective, we're starting from this low and concerning place in Europe and Germany specifically, as we look over the balance of this summer, this is usually when we rebuild the inventories, where and by when do those inventories need to get to? And what really moves the needle there?

You know, what, from your perspective, prices are needed to incentivize that sort of fill? So officially, European Commission storage target is 90% full between 1st of October and 1st of November, sometimes between these two dates, with potentially up to 10 percentage point deviation at a country level, and another 5 percentage point deviation if approved by European Commission. However, the injections, we're still well below that, right?

So injections, we think, have to accelerate. And for that, we need higher prices. We need higher prices for two reasons.

One is to attract more spot LNG cargoes primarily from the United States, as at the current prices, Asian destinations still emerge as more beneficial for U.S. exporters. And secondly, to incentivize more gas-to-coal switching in European power sector, which is, there is a capacity, there is that flexibility, but we need commercial interest primarily through higher gas prices for this switch to happen. In April, to be honest, the injections was relatively healthy, broadly in line with the historical pattern, slightly lower than last year, but it was primarily a result of favorable weather conditions, both on the renewable side and on the temperature side.

However, we cannot rely on this too much, and there is only so much weather can do in summer. So we think that the prices need to do the job. And that's why we think that prices from late Q2 and into Q3 will need to rise somewhere between probably 50 to 60 euro per megawatt hour.

Thanks for that, Ottar. And I mean, if I transition here, I'd say from the metals side, it's an interesting dynamic because metals, inventory is quite important, but in a very different way than I'd say the seasonality that we track on the oil side, on the oil and particularly on the gas side. In metals, we do have seasonality to inventories around Chinese New Year.

You see a very strong seasonal pattern of inventory builds. But what we're seeing at least this week and over the last couple of months is that inventory dislocation is becoming a much bigger story across multiple metals. I think copper is one of the most interesting ones.

You know, copper prices this week are back above 13,500, up 4% on the week. A lot of that has to do with what we're seeing in terms of a rebound in sentiment at what we're talking about at the top of the call in terms of the U.S.-Iran conflict. But there's also a really interesting underlying inventory story that's going on in copper in terms of a dislocation.

And what I mean by that is when we look globally at copper inventories, it looks relatively healthy in terms of an inventory coverage level. Global visible exchange stocks are something around 1.3 million tons, which is quite high relative to recent history. But when you look below the hood, what you actually see is there's quite a sharp divergence.

And the biggest factor in this is that the U.S. holds over 50% of this global inventory and stock. And that's because over the last basically since the beginning of 2025, U.S. imports have been on a pace that are double normalized levels. And that has continued through the course of 2026, which has been pulling almost every marginal spare ton in towards the U.S.

Now, the real question here is, are those stocks going to stay there and what is that going to mean for the market going forward? And our view, as we've been writing in the last couple of weeks, is this question is becoming very pertinent because the U.S. is set to essentially review the Section 232 tariffs on refined copper cathode by the end of June 2026. So the president is supposed to receive a report from the U.S.

Commerce Secretary on whether or not it's actually appropriate to put a tariff on not only refined downstream products like wire rod and tube, which is already in place, but actually on COMEX, that much more commodity grade metal. And from that perspective, what we've been seeing is actually the arbitrage between COMEX U.S. prices and LME prices has been widening in the last few weeks, which is incentivizing and furthering that pull. Our ultimate take on this is that it's actually more likely than not that the Trump administration will pursue something that looks like a phased tariff on refined copper cathode imports coming into effect on or before January 2027.

And our simple kind of thinking around this is that the U.S. is now viewing this as a very critical reserve of metal. And within that, they want to ensure that that copper stays domestically and also that that excess inventory is actually used as a critical reserve rather than enacting policy to incentivizing it to quickly destock and the U.S. not import additional copper. And so from that perspective, we do think the market has been underpricing the risk of this refined copper tariff and whether or not they actually enact this refined copper tariff or potentially kick the can down the road, but talk about doing it more at some later date.

Both of those are quite important because we do think that will still incentivize that import arbitrage into the U.S. to stay open. And what you actually begin to develop in that market is where you have a very bimodal copper market where China needs to import, you know, almost close to three million metric tons of copper cathode a year. The U.S. is pulling all of these tons and they're competing.

And when they are competing and both of those arms are open, what you're really doing is you're pulling at the rest of the world. And and within that, we do still think there is a window here where LME stocks outside of the U.S. and outside of, you know, which which primarily sit in Asia become depleted quite quickly and can lead to some very bullish volatility. So I think it's definitely quite important to kind of keep an eye on that that dislocation as we go towards that June 30th deadline.

So to wrap things up, thank you, Otar, for joining today. I think the broad message here is inventories mean different things for different commodities markets, but are quite important in price formation across the board. On the European natural gas side, what we're really seeing is starting from quite low inventory levels.

And we do think that higher prices closer to 50 to 60 euros per megawatt hour from late 2Q and into 3Q is needed to really get that supply security as we go into next winter. On the metal side, seasonality is not as important, but we're seeing some very interesting dislocation stories and really want to keep an eye on that bimodal pull on that copper market from both China and the U.S. Thank you, everyone, for tuning in to this commodities edition of JP Morgan's At Any Rate podcast.

We look forward to continuing 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. 2026 JP Morgan Chasing Company, all rights reserved.

This episode was recorded on May 8th, 2026.

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