Opinions

Post the 21st Nov deadline on Rosneft & Lukoil by US sanctions, markets expected some fall in Russian crude exports. This reflected in Russian crude prices too as price differentials for all major Russian crude grades widened significantly. Urals DAP India and ESPO CFR China are now trading at their steepest discounts over Dubai crude in nearly a year. Yet real time shipping data tells a different picture. Imports into China, India, and Turkey, the three primary buyers, have continued at broadly stable levels since 21st Nov. Indian imports of Russian oil may have fallen modestly, but likely less than half of the August rate of 1.6 mmb/d, because Middle Eastern selling prices to Asia for December have fallen, not risen. For e.g. December official selling prices to Asia by OPEC’s two largest producers, Saudi Arabia (Arab Light and Medium) and Iraq (Basrah Heavy and Medium), have fallen by -USD 1.20 to -USD 1.40/bbl in December (see chart below). This would be the opposite of what one would expect if Indian refiners were substituting Middle East crude for Russian crude in significant size, heightening competition for that supply. We expect that the disruption to Russian imports might be largest in December, and then moderate during early 2026 as Indian refiners and oil traders involved as middlemen adapt their practices. To some extent, current US administration should be comfortable with such dynamics. This is especially critical as we approach the crucial 2026 US congress elections & affordability issues for US consumer take precedence over foreign policy needs. Sanctions enforcement has been known to be flexible in the past with this goal in mind, in relation to Iranian oil. Combined imports of Russian crude into China, India and Turkey post 21st Nov have remained broadly consistent with August–October averages, even edging slightly higher by roughly 50 kbd. Non-sanctioned companies increased their exports by almost 400 kbd during this period. Sanctioned companies saw a decline of about 350 kbd. The largest decline came from Lukoil, whose exports dropped by more than 0.5 mbd, falling below 100 kbd. Rosneft, in contrast, has sharply expanded its presence. This divergence may be attributed to deeper discounts and greater logistical flexibility offered by Rosneft. Chinese imports of Russian crude have also remained robust after the November 21st deadline. According to Kpler-tracked data, flows rose to 1.3 mbd in post 21st Nov period, up from an average 1.2 mbd during August–October. China’s decision to issue 7.4 Mt of additional crude import quotas to approximately twenty independent “teapot” refiners for use through year-end, equivalent to 1.4 mbd over the remaining 38 days, provides a significant boost to the sanctioned crude market. Russian refined product exports continue to run well below seasonal norms, holding near 1.9 mbd, compared to 2.4 mbd during the summer. But if there is a Russia Ukraine peace deal, we estimate Brent moving towards sub 60 levels from current 63.5 levels as an immediate response. In our opinion, Brent might eventually head towards $50 levels if there is a peace deal and OPEC supply continues at current elevated levels. We would expect a stronger immediate decline in refined product prices from a potential deal. Risk premium for European gasoil/diesel margin above its fair value has already dropped from $15/bbl last week to $7/bbl on peace talks headlines, and we see diesel margins declining by a further $6-$8/bbl if the peace talks succeed, with contributions from a lower risk premium and lower freight rates. Further fall in Brent prices can happen if US forces attack Venezuela and lead to change in political leadership. Eventually this will lead to removal of US sanctions and more supply from Venezuela. Venezuela currently produces 1mbpd supported by black market sales but a full stage recovery of peak production to 2.5 mbpd of 2011 levels can’t be ruled out.

With 2025 coming almost to an end, we see global commodities (ex-oil) set for more upside in CY26. Base metals demand supply mismatch with more demand arising from EV demand, AI data centres & supply suffering from adverse shocks such as seen in Copper currently. Copper prices recent rally are also being driven by the large difference between COMEX & LME prices as tariff worries on Copper resurface in CY26 as Trumps looks to revisit them. Aluminum is also looking set for further rally as China inches closer to the 45 million tonne capacity cap, and with issues around aluminium smelters securing commercially viable power contracts. We see Copper testing $12k/t levels by mid CY26 & Aluminium breaching $3k/t levels in early CY26. In precious metals, Gold seems to be forming a higher bottom around $4200/oz levels currently & we see a higher probability of it crossing $4500/oz levels by mid CY26. Both Gold & Silver seem to have found a new set of investors who are driven by recent strong price performance. The stablecoin issuer Tether has become a major new structural buyer of physical gold, now one of the world's largest holders outside of central banks, with reserves reaching approximately 116 metric tons as of Q3 2025. On Silver itself, technically $65 levels look attainable by mid CY26. Silver mine production has been decreasing for the past ten years, especially in Central and South America, due to mine closures, resource depletion and infrastructure challenges. The metal is increasingly used in electric vehicles, for AI components and in photovoltaics. Suffice to say, silver is extremely volatile and any bullish view gets stopped out after a weekly close below 48 levels. On Crude, our bearish view remains intact. Our base case sees Brent falling to $55 levels in Q1CY26 as OPEC+ continues to strive for gaining market share & Trump tries to ensure cheap gasoline prices before the mid 2026 House elections. Any Russia Ukraine peace deal might further pull prices lower, more so for refined products than crude itself. Reason being Russia refined products exports have declined by 0.9mb/d since March 2022 while Russia crude exports have remained nearly flat. Also product margins currently price a higher geopolitical risk premium than crude prices & freight rates may normalize if voyage journeys shorten. In summary, commodities prices except crude are likely to remain well supported & are set for more upside in CY26.

On 23rd Oct, the US Treasury Department sanctioned two Russian oil giants Rosneft PJSC and Lukoil PJSC as well as all entities in which they hold a direct or indirect stake of 50% or more, for operating in Russia’s energy sector. As a result, all US or US-based entities and individuals are barred from transacting with the sanctioned entities. Non-US ones may also be at risk of being penalized if found to be dealing with Rosneft, Lukoil or their sanctioned subsidiaries. Transactions involving the two firms need to be wound down by Nov. 21. So we decided to look at hard data on supply from these two entities. Currently there is 3.0mb/d of YTD Rosneft-Lukoil YTD exports (1.7mb/d from Rosneft seaborne exports, 0.8mb/d from Lukoil seaborne exports, and 0.5mb/d for oil via pipelines). But we believe the potential hit is likely to be smaller than the 3 mbpd for following reasons: 1) Exemptions for importers via licenses 2) Ongoing purchases of (discounted) Russian barrels 3) Reorganization of trade networks 4) Higher core OPEC production. We believe that these new sanctions are likely to result in narrower profit margins for Russian crude exporting entiites, as increased logistical and payment complexities may reduce profitability and prompt Russian producers to offer deeper discounts on their products. But overall export flows might not be impacted more than 0.5-1 mbpd. By destination, combined Rosneft and Lukoil year-to-date (YTD) estimated exports stand at 0.7mb/d for China, 1.2mb/d for India, 0.4mb/d for Turkey, and 0.8mb/d for other importers. In this we assume only India goes down by .4mb/d where as China remains the same. Hence the current 1.5 mbpd disruption factored in by Brent is more fear than reality. In September, exports from “other” Russian suppliers to India totalled about 260 kbd out of a total 1.6 mbd; these flows from alternative or unknown suppliers could expand to roughly 1.0 mbd as intermediaries step in, while 0.2–0.3 mbd may continue to be imported directly from sanctioned companies. However, the remaining 0.4 mbd may no longer be available to the Indian market. Given time, Russia has the capacity to potentially divert 0.8 mbd of its seaborne exports to countries like Egypt, Malaysia, Vietnam, Brunei, and South Africa. China’s blending capacity could absorb an additional 1 mbd of Russian crude. And then we have OPEC spare capacity of 3 mbpd. Hence The potential reduction in purchases of Russian oil may be temporary if progress towards a peace process to end the war in Ukraine were to be made and/or if energy affordability were to rank higher on Western policymakers’ priority list. For political reasons too, President Trump’s inferred preference for WTI oil is around $40-50/bbl seen by his previous public comments. With affordability issues at the centre of 2026 US mid-term elections, we don’t believe Trump is going to tolerate the recent rise in crude prices. In addition, in recent past, he has said that he does not like using crude sanctions because it shifts the global trade away from USD which he does not like. So unless Putin is thinking of enlarging the war theater, Trump will soon find an exit route for his new sanctions on Rosneft & Lukoil. Even if we are wrong on all our assumptions above, Putin might see the cost of these sanctions and accept a ceasefire along current war lines. That situation again supports our view of Brent returning to 60$ levels sooner than later. We will be proved wrong if Brent sustains above 70$ levels on a weekly closing basis. But by then we believe TACO will already be in play. Hence the current rally in Brent prices are a golden opportunity for oil producers to hedge.

Today OPEC might announce another increase in their crude output levels. We expect it to the tune of 400,000-500,000 bpd against current market estimates of 150,000-200,000 bpd. We believe Saudi is trying to corner market share of Russia which it hopes might be falling due to sanctions as well as India likely reducing imports from Russia due to US pressure. But is the Russian crude exports falling any time soon? We don’t believe it is even after repeated Ukranian attacks on it’s oil infrastructure as we detail below. So, both Saudi and Russia are trying to out do each other with more and more supply. For one it is about market share and for other it is about critical revenues in war times. Coming to physical demand supply, supply is growing by leaps and bounds. Brent oil prices have already fallen to $65 following Iraq seeing Kurdistan oil exports resume via Turkey after a prolonged 2-and-a-half-year suspension. We believe September marked a turning point, with the oil market now heading towards a sizeable surplus in 4Q25 and into next year. Middle East demand is declining seasonally, freeing up volumes for exports. As a result, the Middle East could potentially release an additional 0.5mbpd to global markets from October onward, simply due to reduced domestic demand. Stock builds are accelerating in the fourth quarter as refinery runs decline by 2.6 mbd from August to October due to maintenance, while demand softens by 0.9 mbd seasonally during the same period. Crude exports from the OPEC+ alliance jumped to the highest in 28 months in September, a sign that the volumes freed from seasonally softening demand and output hikes are starting to hit global markets. The loosening of Dubai crude, which turned Brent-Dubai from deeply negative back to positive in recent days can imply more medium-heavy oil supply being made available. Russian exports continue undiminished. Ukrainian drone strikes on Russian energy infrastructure have caused localized damage to refining capacity, restricting oil-product exports and driving Russian fuel prices to record highs. This, in turn, has freed up more crude for Russia to send externally, and despite multiple attacks on two port facilities and connecting pipelines, there are no indications of export disruptions; in fact, crude exports have surged to new highs. On demand side, Chinese SPR demand is supporting Brent prices to not fall below 60 levels. China's crude inventories, including oil on water and underground stocks, now stand at 1.25 billion barrels, surpassing the levels reached in August 2020 at the height of the COVID shutdown. Despite hopes for a diplomatic reset at the upcoming October 31-November 1 APEC Summit in South Korea, China remains cautious and continues to build oil reserves, with ample storage capacity still available. We also believe that keeping low oil prices is a key priority for current US administration. Given the multitude of existing and forthcoming sanctions on Russia, Iran, and Venezuela which together account for 20% of global supply, Trump administration wants to keep crude well supplied from OPEC. In this background, Saudi Prince MBS meeting with US president Trump in November might ensure sustained output increases from OPEC to keep crude prices subdued. To summarise, for all the above reasons mentioned above, we see sustained supply glut leading to our expectation that Brent prices might fall to 60 level by end CY25. While Saudi is trying to gain market share because it sees the sanctions on Iran, Russia & Venezuela, the above three countries continue to export crude through channels which defy sanctions. Today OPEC meeting is another milestone in this fight for market share.

On 8 September there was a mud rush at the Grasberg Block Cave copper mine in Indonesia, which forms part of the world’s second largest copper mine, accounting for 4% of global supply in 2024. All mining operations have been halted and a phased restart is expected in Q4 2025. Local investigations are expected to be completed by the end of 2025. The company guided that its copper and gold production would be “insignificant” in 4Q25, operating at around 65% of pre-levels in 2026 and recovering completely only in 2027. The LME copper price closed at $10,181/t on Friday (26 September), up 2.6% in response to the announcement. We estimate there will be a total loss of app 550kt of copper mine supply as a result of the disruption. After adjusting for disruption allowances, we see a 160kt downgrade to H2 2025 global mine supply forecast and a 400kt downgrade to consensus 2026 forecast. We expect a 250-260kt loss of production from Grasberg in 2025, from previous market estimates of 700kt. The Grasberg developments and wider modelled deficits add fundamental conviction to our bullish 2026 copper price view. We are constructive medium-term copper to $12k/t over the next 6-12 months in our base case. Copper is exposed to structural energy-transition and AI trends and leveraged to a pickup in US and global growth expectations from 2026 given the prospect of a dovish Fed and related lower US real interest rates. On the demand side, Copper is highly sought after for data centers, electric wires & above all defence items. Rising geopolitical tensions, accelerating military rearmament and modernization, as well as shifting security priorities are driving a security super cycle that’s global in nature and multiyear in duration. We expect 12,000 levels to come by $12k/t by mid CY26 in a best -case scenario & by end CY26 in the base case scenario. CY27 might even see further upside towards $14k/t if global economy holds up and Fed does cut by 100 bps by Q1CY26 as we expect. The copper upswing might also be aided by weaker dollar globally, upswing in AI Capex as well as frontloaded European defence spending. With Fed focussing more on it’s employment mandate than inflation, metals are likely to do well as inflation hedges. Hence Copper prices remain supported by current macros as well.

We are starting a new section on commodities which will be a monthly round up of how various commodities are performing, future trends & price outlook. We look at open interest movements across commodities, net investor positioning across commodities, which commodities show backwardation & contango, which commodities show rich volatility premia, CFTC positioning, which commodities show strong momentum etc. Then we look at individual commodities expected price trends. For crude we believe physical demand supply equation means sub 60 levels by end CY25. Based upon current global and OECD inventories, we can even see sub 50 levels by mid CY26. In gold we believe price movement can be summarised as: conviction purchases + opportunistic purchases = sales of existing stock + mining supply. We believe our ratio of net conviction purchases/mining supply is indicating now a intermediate correction in Gold prices. ETFs and speculative hands selling is reducing the net conviction purchases. We are looking for sub-3000-dollar price target with stop loss at 3460 levels. CMP is 3385. In base metails, we estimate a large boost to industrial metals demand from rising EU defence spending. Historical data suggest that defence currently accounts for 2-3% of global copper, aluminium, steel, and zinc demand and 7% of nickel demand. Euro area military spending is expected to rise from 1.9% in 2024 to 2.7% of GDP by 2027, with a large share of this rise to be spent on metals-intensive equipment. We estimate this would translate into cumulative demand boosts by 2027 of 6% for European industrial metals, and globally of 0.4% for steel, 0.9% for copper, and 1.3% for nickel. In summary, we remain bearish on oil for demand supply reasons, bearish on Gold for reducing net conviction purchases flows & bullish on base metals due to expected increase in European defence spending. As Fed embarks on the 125-bps rate cycle by end Q1CY26 as we envisage, we see dollar lower leading to slight support for base metals and crude but not so much for Gold. We see brent sub 60 by end CY25, Gold sub 3k by Q1CY26 and Copper at 480-490 levels by Q1CY26.