Global Commodities: Seeing the Invisible
The desk posits that persistent commodity tightness, particularly in natural gas and aluminum markets, underscores broader supply chain vulnerabilities resulting from geopolitical tensions, notably the closure of the Strait of Hormuz. Per the full note from J.P. Morgan, despite the implementation of a Memorandum of Understanding aimed at easing pressures, traders should remain wary of ongoing constraints that could disrupt pricing dynamics. This insight highlights the interconnectedness between energy commodities and foreign exchange movements, as any sustained price spike in these sectors could affect currency pairs like AUD/USD and CAD/USD, leveraging commodities' influential role on the broader economy.
What the desk is arguing
The desk believes that ongoing tightness in the natural gas and aluminum markets, exacerbated by geopolitical disruptions, presents significant risks to commodity pricing stability. Per the full note from J.P. Morgan, the recent fluctuations in market prices do not reflect the underlying supply constraints, suggesting that traders should prepare for potential volatility ahead.
The key evidence underscores the impact of the Strait of Hormuz closure, where tighter supply chains could persist despite temporary price alleviation. J.P. Morgan calls attention to the rising costs that have been maintained within these segments, reinforcing the argument that traders must factor in potential inflationary pressures.
Where it sits in our coverage
Our internal range for commodity-sensitive FX pairs reflects a consensus target of 1.075 against USD, with specific forecasts including:
The current desk position aligns closely with jpmorgan, who projects a slightly bullish outlook amidst heightened supply concerns and macroeconomic instability, positioning us towards the upper end of the consensus range.
How other firms see it
Several firms, including jpmorgan, align with the view of sustained volatility in the commodity markets, suggesting upward pressure on currencies closely tied to these materials. Conversely, bofa presents a more cautious perspective, highlighting potential downside amid unforeseen demand shifts.
Traders should watch key commodity pairs, particularly those sensitive to energy market fluctuations, as developments in natural gas prices often correlate with adjustments in USD/CAD and AUD/USD trajectories. The FGX energy index also offers insight into potential macroeconomic repercussions related to this narrative.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Tightness in natural gas and aluminum indicates ongoing supply risks.
- 02The closure of the Strait of Hormuz continues to impact commodity prices significantly.
- 03Traders should monitor FX pairs like AUD/USD closely, linking to commodity price fluctuations.
- 04Volatility in commodities could signal greater macroeconomic instability.
Market implications
Monitor the AUD/USD pair as fluctuations in natural gas prices could lead to pronounced moves in line with commodity correlations, particularly if prices rebound post-disruption. Any noticeable softening in energy costs or production issues might serve as a critical inflection point.
Risks to this view
Should geopolitical tensions ease significantly, a corresponding drop in commodity prices could undermine the current bullish thesis, creating shifts in trade flows and currency valuations. Additionally, unexpected central bank interventions or rapid economic recoveries could also invalidate long positions if they redirect demand dynamics.
Hello, and welcome to another episode of At Any Rate. I'm Greg Shearer, your host for today, and I head Basin Precious Metals Research at J.P. Morgan.
It's been another headline-heavy week for those in commodities markets. The most important piece of news to digest is the Memorandum of Understanding between the U.S. and Iran, which was signed by both presidents on Wednesday. The agreement envisions a reopening of the Strait of Hormuz and the lifting of sanctions on Iranian oil for 60 days.
With that said, the U.S. president cautioned that the U.S. is willing to start over on the bombings if needed. Prices have reacted accordingly. Since midweek last week, both oil and European gas are down nearly 20 percent.
Precious metals popped higher initially, with gold up around 8 percent, before a more hawkish Fed tempered those gains later this week. While markets are pricing in the agreement, fundamentals still remain strained. Although feasible oil flows to the Strait have recently ramped up, gas and metals have not seen much easing on the supply side.
In addition, there is some uncertainty around the invisible parts of the balance across various commodities, especially with regards to vessel crossings, inventories, and demand. I would like to discuss this, as well as other developments, with Oktar Degbuazi, who leads European natural gas research at J.P. Morgan.
Oktar, thanks for joining. Could you briefly update our listeners about where do we stand on the LNG fund? So what are we seeing on flows?
What about supply and the gas markets overall? Hi, Greg, and thank you for having me. This week, obviously, all eyes are on the Strait of Hormuz reopening and what's the expected timeline to restore the flows.
Even though the memorandum and the developments recently have been significantly de-escalatory and have provided some support to the market and prices have reacted accordingly, the fundamentals have not changed that much. So this week, we observed one vessel crossing from Qatar, so through Hormuz, which was originated from Qatar. And today or yesterday, we also saw another empty vessel entering the Hormuz, which is the second such crossing since the beginning of the conflict, the beginning of March.
This is somehow similar, but also different compared to oil markets. For example, in terms of tanker crossings, in oil market, it's much more difficult to track current shipments because of the switching of the transporters, the so-called dark fleet, and obviously the number of vessels, which are much, much bigger. However, when it comes to the restoring the flows, we think it's more or less similar timeline.
So even though we do expect that there will be increasing shipments in the first couple of weeks based on the tankers, which are loaded and waiting inside the Strait for the full recovery or let's say for a normalized recovery to something like 80% plus of pre-conflict levels will still take us to early fall, probably early September. And beyond that, it comes to restarting the upstream production, which will be faster in some countries than others. Okay, so still on a timeline here towards September.
One of the questions I'm getting, and I'm sure you're getting as well, this crisis has really exposed the data that we don't have and we wish we had, right? And to that end, on the gas side, with that sort of outlook, where do you find the most uncertain parts of the balance? Where is that data less visible or the numbers in your balance, you know, potentially likely to change, accelerate, X, Y, Z?
Data is least visible in Asia, especially in China, which is the largest gas market in Asia. We have almost no visibility about Chinese storage levels or storage capacity for that matter, whether it comes to the underground gas storage or energy storage in the terminals. In Japan and Korea, we do have a bit of visibility on the stocks.
However, their storages are relatively small in absolute terms, so they don't necessarily impact markets significantly. The other big market in Europe, we have great visibility. I think it's probably one of the most transparent commodity markets globally.
We track storage levels in almost real time with two days of delay. And as of now, storage is about 35% in Northwest Europe, which is lower than last year's 50% around this time of the year, and which last year was lowest in five years. So European storages remain very low, and the storages and generally market transparency remains very limited in Asia, which is the part that makes our job a little bit more challenging and interesting.
Okay, thanks for that, Ottar. So continued focus on that good data availability of inventory tracking in Europe, where it looks like there's still a very large hole to dig out, with also, you know, looking forward, still quite a prolonged recovery rate in terms of a ramp up of LNG production from Qatar, which I think actually transitions quite well to the aluminum side, which is we've seen a similar market reaction in aluminum to what you were describing on the gas front. The initial kind of knee-jerk lower of, okay, the Straits opening, we can release stocks, you know, raw materials can begin to flow in, prices on that fell.
We had almost, you know, in early June, we're peaking almost close to 3,800. We're now down towards around 3,400. The issue with that, I would say, is similar to the ramp-up schedules you're talking about in terms of those LNG facilities, smelters are not easy to turn back on, even when you've had a controlled shutdown, and some of this infrastructure has ultimately been damaged.
So, when we have, you know, our latest balance update from last week, which embedded a straight reopening, a process of restarting these smelters, beginning essentially now, we still see a market here that is facing something around nearly a 1 million metric ton deficit that needs to be covered in the second half of 26. What we think that really means for the market here is that prices could be due for a bit of a whiplash. You know, the initial knee-jerk lower is then met by a continued and now much more visible draw in inventories as we go through the balance of this year, and that supply takes a while to ramp back up out of the Middle East.
And ultimately, what we think that that looks like is we still need to draw from Chinese onshore inventories via exports to backfill for these lost Middle East tons, and we are beginning to see in the last two weeks more market draws on a week-over-week basis out of Chinese aluminum inventory. And ultimately, for LME prices or rest of world prices to continue to incentivize the drawing of that metal out of China where the visible stock really lays now that we think you've exhausted a good deal of that invisible stock, which is where the data transparency gets a little bit gray in metals. You know, it's metals held at merchants and physical traders as well as producers.
Feedback from some of our recent industry events indicate that those are running pretty lean after doing a lot of work filling the deficit in the second quarter. And ultimately, what we think is for LME prices to continue to keep incentivizing those needed exports out of China, that still looks like something where aluminum prices are averaging around $3,750 per metric ton over the second half of 26. So from our perspective, we're still in a slow recovery environment in aluminum.
There's a window here of a couple of quarters where there still looks to be a large deficit that needs to be filled. And that looks to be like it's going to be reliant on a lot more visible stocks, which in our view thinks that actually the risk bias on these prices is still for a bit of another push higher before we begin to get more sustainable return to supply later into 2027. So to sum things up, I'd say both of these markets actually quite similar in that the fundamentals day one haven't changed and the ramp up periods for this infrastructure is still quite prolonged.
So a lot of focus on what's coming out of the strait, the ships coming in. Long story short, we don't think you're necessarily out of the woods here in terms of some of the supply tightness that has been impacting both aluminum and gas. Ottar, thank you so much for joining me.
To our listeners, thank you for tuning in to this Commodities Edition at J.P. Morgan's Any Rate podcast. We look forward to continuing the conversation next week.
This communication is provided for information purposes only. Please refer to J.P. Morgan research reports related to its content for more information, including important disclosures. 2026 J.P.
Morgan Chase & Company, all rights reserved. This episode was recorded on June 18th, 2026.
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