Commodities weekly: Energy slumps, but physical oil stress keeps the market on edge

Energy: paper correction meets physical tightness

The energy sector has been the clear driver of this week’s weakness, with the sector index falling around 9.4% on the week, albeit still up an extraordinary 52% year-to-date. The decline follows a ceasefire-driven slump that triggered a sharp unwind in crude and refined product prices, marking the largest weekly drop since last June.

Brent crude has attempted to stabilise below USD 100 per barrel following the sell-off, but the market remains caught between conflicting signals. On the one hand, ceasefire headlines and the prospect of diplomatic progress - particularly ahead of U.S.-Iran talks in Islamabad - have encouraged a reduction in risk premium, while the physical market continues to tell a very different story.

At the heart of this divergence lies the ongoing disruption to flows through the Strait of Hormuz. Despite tentative steps toward de-escalation, the Strait has effectively remained constrained since late February, with limited vessel traffic and lingering uncertainty around security and insurance. This has left a significant number of vessels stranded in the Persian Gulf and disrupted the normal flow of crude, fuels, and petrochemical feedstocks. The result is a market where prompt supply remains acutely tight, even as futures prices have corrected.

Nowhere is this more evident than in the North Sea. Dated Brent - a benchmark for physical cargoes - has surged to an extent that physical barrels are currently swapping hands at premiums of more than USD 35 above the prevailing futures price. These levels underscore the premium refiners are willing to pay to secure prompt barrels as they scramble to replace disrupted Middle Eastern supply. 

This dynamic reinforces a key point: the recent sell-off in crude has been driven more by positioning and headline risk than by a genuine loosening of near-term fundamentals. As highlighted in recent positioning data, a heavily extended speculative long position held by hedge funds in Brent left the market vulnerable to a sharp liquidation event once ceasefire headlines emerged.

Looking ahead, the trajectory for crude will likely depend on two competing forces. Further downside would require additional long liquidation and a sustained improvement in geopolitical risk. Conversely, any renewed disruption or delay in restoring normal shipping flows would quickly reassert upward pressure, not only in the prompt market where inventories remain tight, but also along the futures curve as traders price in a prolonged period of tightness and higher prices.

Metals: macro reset supports precious and industrials

While energy has corrected, the metals complex has shown renewed strength. Both precious and industrial metals have rebounded this week, supported by a shift in the macro narrative.

Gold is heading for a third consecutive weekly gain, having recovered roughly half of the USD 1,500 correction seen between February and March. The earlier sell-off was driven by a combination of liquidity stress, rising bond yields, and a stronger dollar as the initial phase of the Middle East conflict triggered an inflation shock.

Since then, the macro environment has evolved. A softer dollar, easing inflation concerns, and growing focus on the risk of a growth slowdown have all contributed to renewed demand for bullion. In addition, fiscal concerns - particularly in the U.S. - continue to underpin the longer-term investment case.

ETF flows support the view that the correction was largely a shake-out rather than a structural shift. Holdings in bullion-backed ETFs fell by 94 tons during the March correction, reducing total holdings to 3,044 tons. However, this decline has already begun to reverse, with approximately 21 tons added so far this month. In context, the earlier reduction represents only a fraction of the 545 tons accumulated during 2025.

Silver has outperformed gold on the rebound, benefiting not only from similar macro drivers but also from its industrial linkage. Strength in copper and a modest improvement in risk sentiment have provided additional support. Platinum has also stood out, outperforming the broader complex despite not being included in the BCOM index.

Overall, the metals space is increasingly reflecting a macro reset from inflation shock toward growth risk, with precious metals regaining their role as a hedge while industrial metals respond to stabilising demand expectations. Some caution emerged on Friday ahead of the US inflation print for March which was expected to show a 0.9% increase lifting the year-on-year inflation to 3.4% from 2.4% in February, while the core which excludes food and energy was expected to show a moderate increase to 2.7%.  

Copper: demand signals improve as technical recovery unfolds

The copper market continues to stabilise following last month’s sell-off, which was driven by rising growth concerns amid surging energy prices. While those concerns have not fully dissipated, the fundamental backdrop is showing signs of improvement.

China remains the key driver. Exchange-monitored stockpiles have fallen sharply, declining by 39% over the past four weeks from a record high. At the same time, import premiums have climbed to a ten-month high, signalling firm underlying demand despite broader macro uncertainty. 

However, it is worth noting that while SHFE-monitored copper stockpiles have declined sharply in recent weeks, inventories in London have continued to build, reaching a 12-year high of 393 kt this week. As a result, the overall drawdown in total exchange-monitored stocks, which includes the COMEX in New York, has remained modest. These developments suggest that the earlier sell-off may have overshot fundamentals, particularly as physical demand in some parts of the world appears to be holding up better than expected.

From a technical perspective, the recovery has been notable. HG copper has rebounded strongly - mirroring gold - after finding support near the 200-day moving average, last at USD 5.3030. The contract is now challenging resistance at the 50-day moving average (USD 5.761), which also coincides with the 38.2% retracement of the February–March correction.

A sustained break above this level would likely reinforce the view that the market is transitioning from a correction phase back toward consolidation or recovery. However, the broader outlook remains sensitive to developments in global growth expectations, particularly in China and other key demand centres.

Agriculture: losing crisis premium, returning to fundamentals

The agriculture sector has posted a modest decline this week, leaving it still up around 5% year-to-date. However, beneath the surface, the tone has shifted as markets begin to lose some of the crisis premium that had built up during the peak of the energy rally.

Chicago wheat futures have dropped to a one-month low, pressured by a combination of profit-taking, technical selling, and a more constructive supply outlook. The USDA recently raised its forecast for end-season global wheat stocks to 283.1 million tons, up from 277 million previously, reinforcing the perception of adequate supply.

Positioning dynamics have also played a role. After maintaining a net short position for a record duration, hedge funds recently flipped to a small net long. This shift has left the market vulnerable to liquidation as both technical and fundamental conditions have softened.

Sugar has seen an even more pronounced correction, heading for its longest run of daily losses in almost two years. Prices have dropped around 7% this week to near 14 cents per pound, following a rally above 16 cents last month.

The earlier rally was driven in part by the surge in oil prices, which increased the incentive for mills - particularly in Brazil - to divert cane toward ethanol production. As energy prices have retreated, that support has faded, bringing the focus back to underlying supply conditions.

The global sugar market remains oversupplied, with another surplus widely expected in the 2026–27 season amid strong production in Brazil. As a result, producers have used the recent rally to hedge future output, adding further downward pressure on prices.

Taken together, developments in agriculture highlight a broader theme: as the energy shock fades, markets are reverting to crop-specific fundamentals, including supply, demand, and positioning.

Outlook: underlying strength despite divergence between sectors

Energy markets remain the focal point, with the interplay between geopolitical developments and physical supply constraints driving price action. While futures have corrected, the persistence of tightness in the prompt market suggests that risks remain skewed to the upside should disruptions continue.

Metals appear better supported in the near term, particularly if the macro environment continues to favour a weaker dollar and lower yields. Copper’s stabilisation adds to the constructive tone, although much will depend on the trajectory of global growth.

Agriculture is likely to remain more mixed, with individual markets driven by supply conditions, which besides weather developments hinges on the cost of production through higher diesel costs and not least the cost and availability of fertilizers rather than broad macro trends. Over the past month, fertilizer costs and availability have shifted sharply higher due to the surge in natural gas prices - key input for nitrogen-based fertilizers - and disruptions to exports from the Middle East, a major supplier of urea and ammonia, tightening supply just ahead of the northern hemisphere planting season. Meanwhile, positioning from speculative accounts will continue to add an accelerant in both directions depending on changes in the technical and fundamental outlook.