Material Matters: Oil, LNG, Copper & Grains

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This story features GRAINCORP LIMITED, and other companies.
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A glance through the latest expert views and predictions about commodities: Ongoing Middle East conflict to push up oil and LNG prices; Russian sulphuric acid ban impacts copper; lower food supply and weather risks inform agriculture views.

• A deal between the US and Iran is becoming inevitable, yes?
• Loss of Qatari LNG exports to keep pricing high
• Copper volumes could face impact from sulphuric acid shortage
• El Nino remains the key risk to FY27 volumes and earnings for agri-sector

By Greg Peel

Oil

The closure of the East-West pipeline in Saudi Arabia following multiple attacks last week materially altered the state of the oil market.

The pipeline provided around 4.2m barrels per day of additional crude oil to the global market, Commonwealth Bank analysts note, via Saudi Arabia’s Red Sea coast –- providing a critical bypass to the Strait of Hormuz.

Oil prices have since fallen back to under US$100/bbl as around half of the capacity of the East-West pipeline is coming back online (presumably until the Houthis attack again), and Saudi Arabia also turns to the pipeline through the UAE to the coast beyond the Strait of Hormuz.

But other stabilisers in the oil market have also weakened, CBA notes, including non-OPEC-plus oil supply growth outside the Middle East in 2026 and structurally lower Chinese crude oil imports.

Any increase in Chinese oil imports from August levels will add to concerns that oil markets will tighten further. China had to date been relying on vast strategic reserves, but these can only last so long.

The rise in physical Brent prices to above Brent oil futures, alongside a surge in oil tanker freight rates, underscores near-term oil shortage fears, CBA points out.

Compounding the problem for consumers is that refined product markets, especially diesel, are already very tight. This tightness in diesel markets largely reflects reduced exports from the Persian Gulf and Russia.

CBA last week estimated that oil markets had five to ten weeks before global oil and refined product inventories deplete, compared to estimates closer to 15 to 20 weeks just a fortnight prior.

Inventory depletion raises the risk that Brent oil futures need to rise to $US150/bbl to trigger uncontrolled demand destruction (where high prices force lower demand) in emerging and developing Asian economies.

CBA is thus more confident in a view that the US will seek to make a deal (85% probability). The US will want to make significant moves towards a deal with Iran in the next five weeks.

There is also the possibility (15%) that the US will pursue a major escalation by returning to the intensity of conflict seen in March, or perhaps even a greater intensity, CBA warns.

Constraints on military resources, including missile stockpiles, make this latter option unlikely. Iran can also respond to a major escalation with broad attacks on energy and other economic infrastructure in the region, which will also deter escalation.

For Trump’s part he is reportedly in “decision mode”.

LNG

The geopolitical stalemate in the Middle East is likely to keep Qatari LNG exports constrained until at least the first quarter of 2027, ANZ Bank analysts suggest, removing nearly -28mt of supply from the market during the 2026-27 northern hemisphere winter.

Rising US LNG production can partly offset the loss of Qatari exports but is unlikely to be sufficient to meet both the supply shortfall and seasonal growth in demand.

As inventory buffers diminish, demand destruction will (again) become the primary balancing mechanism, ANZ notes, leaving gas prices elevated and global LNG markets structurally tight well into 2027.

The near-term outlook for global LNG markets has deteriorated significantly since mid-2026. Previously, ANZ expected the reopening of the Strait of Hormuz to allow a gradual recovery in LNG exports from Qatar and the UAE, easing concerns over supply availability.

This expectation was built around the assumption that shipping activity would progressively normalise during the second half of 2026, allowing export capacity to recover despite lingering logistical disruptions.

Well, that didn’t happen. Developments in the Middle East have fundamentally altered that outlook.

The latest escalation in the conflict has reinforced the prospect of a prolonged geopolitical stalemate, while no meaningful progress has been made towards restoring unrestricted transit through the Strait of Hormuz.

ANZ’s latest assessment of oil markets suggests Persian Gulf energy exports are likely to remain constrained well into 2027.

Qatar alone accounts for a critical share of globally traded LNG, ANZ notes, particularly across Asian markets. As a result, LNG markets face an extended period in which lost Qatari exports cannot be fully replaced.

The market is therefore moving away from a recovery phase and into a rationing phase in which demand rather than supply must adjust.

Copper

Copper prices last week pulled back from recent all-time highs to US$6.37/lb, with RBC Capital pointing to reports of no US copper tariffs unwinding some of the physical market speculation.

The price has since risen back to US$6.80/lb.

Last week Russia banned sulphuric acid exports (critical for copper production) through end-2026 to protect domestic industrial and fertiliser supply, which RBC found notable given nearly all of Russia’s exports flow to Kazakhstan, mirroring China’s similar ban in May.

As such, RBC warns reduced acid availability and higher prices could spur production cuts for copper oxide producers.

Agriculture & Chemicals

World food prices rose for a third straight month in August to a near four-year high, but Morgans points out this is still -17% below the March 2022 peak (when Russia invaded Ukraine).

Since July, Ukraine and Russia have been hitting each other’s Black Sea ports. Odesa’s terminals (90% of Ukraine’s wheat exports) are close to idle and all but one Russian Black Sea terminal is shut.

Russian wheat exports are at their lowest since 2016, while Ukraine’s are at a 16-year low.

Then there’s the weather.

2026 wheat output across the top seven exporters is down -11% on drought and there appears near-certain odds of El Nino running through to February 2027.

In Australia, ABARES’ 1 September report lifted the winter crop forecast 12% from June to 61Mt (still down -12% year on year) on excellent conditions from SA through Victoria into southern NSW, while northern NSW and Queensland are doing it tough.

El Nino’s other channel runs through Peru, where the first anchovy quota was cut -36% and only 25% was caught before the fleet was stood down on 10 June.

Fishmeal and fish oil prices have risen strongly. In the 2023 El Nino, fish oil prices more than doubled.

Morgans has an Accumulate rating on GrainCorp ((GNC)). The short-term grain price play has already started to run, but there is still upside to Morgans’ target price ($7.48).

Grain marketing margins feed on this volatility and crush margins are buoyant in line with rising oil prices. Longer term El Nino conditions in Australia are the risk to next year’s crop, though the rain down south points to a decent crop this year.

Morgans’ top pick in agriculture and the El Nino hedge is Nufarm ((NUF)) (Buy; $4.15). Unfortunately, that company has issued a profit warning this morning and its shares are down by circa -5% at the time of writing.

If dry conditions hit crop protection sales, higher omega-3 prices will offset, Morgans noted prior to today’s market update, as fish oil prices respond to a reduced fish catch in Peru when the water warms.

Bega Cheese ((BGA)) (Hold; $7.05) is a beneficiary of rising global dairy prices, Morgans notes, and it is geared to the protein and health-and-wellness shift, with GLP-1 uptake lifting yoghurt and milk-based beverage consumption.

Bega moved quickly on Middle East cost pressures with surcharges across its ranges and picks up consumers trading down to private label white milk.

Citi has a different take on the sector.

Citi expects dry conditions in Europe are likely to have impacted volumes and margins in the second half of 2026. Meanwhile, North American farmers have experienced strained margins (diesel, fertiliser, tariffs), creating a difficult operating environment for agrichemical providers.

While seasonal conditions exceeded expectations in Australia in the second half, El Nino is the key risk to FY27 earnings.

Most inputs for farmers have moderated from the highs experienced during the beginning of the Middle East conflict, except for diesel. However, if input costs rise then the risk for Nufarm and Elders ((ELD)) is that farmers either trade down or reduce crop chemical applications, Citi suggests.

Higher ag commodity prices nonetheless have the potential to offset farmers’ margin pressure from higher input costs. Citi flags a number of bullish risks to commodity grains and oil-seed prices that could see ag commodity prices rally further.

Citi believes Elders is fairly priced following strong share price performance. The potential for El Nino conditions and lower property churn (Elders is, among other things, a stock and station agent) and prices provide downside risk heading into FY27.

Citi therefore downgrades its rating to Neutral from Buy. Target $6.60.

Citi retains Neutral on Nufarm (target $3.40).

This analyst still wants to see more evidence of rational competition and improved earnings quality as the business emphasises its focus on higher value products, believing this will be tough in an environment in which farmers’ margins are constrained through higher input costs and dry conditions in Asia-Pacific and Europe.

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