We think the complete opposite. We believe oil prices will not sustain these levels and that the market is heading lower. We have held that view since the conflict began in early March, and our approach has been proven right, consistent with our track record of predicting where oil prices are actually going.

The reason is simple: while the consensus chases headlines and extreme forecasts, we stay focused on the actual flow of oil and what the data is saying.

The bull case assumes lost production will trigger a massive shortage, pushing prices toward $150 or even $200. That kind of thinking fails the moment prices stop cooperating with the forecast. You cannot fight where prices want to go. The faster you accept that, the better your chances of being right.

Since the start of the Iran-US conflict, oil prices have moved above $100 WTI on three occasions: $105 on March 30, $113 on April 6, and $109 on April 29.

Each time, prices quickly fell back below $100. Fear moves markets fast, but it cannot hold prices at levels the real economy does not support. Demand, supply, and what the consumer can actually afford are what move oil over time.

We are now back over $100, with prices around $102 on May 12, and we do not expect this level to hold. From the start, we knew that a weakened Iran could not sustain a permanent supply shock. The Strait of Hormuz risk premium pushed the price floor higher, but a higher floor does not mean prices can stay wherever the market wants to push them.

We made this point clearly on March 12, in our LatAm Oil & Gas report:

"We do not see oil staying higher for longer. Iran is now too weakened to sustain this move. While the market is reacting to headlines, the reality of a diminished Iran will eventually bring prices back down. The fundamentals simply do not support a permanent shift to triple-digit oil, and we expect this premium to fade."

Table of Contents:

0. Introduction: Don’t Fall for the Oil Bulls

1. How We Analyze the Oil Market

2. The Importance of Simplification

3. Why We Have a Contrarian View on Oil

   3.1 Trump & the Midterm Pressure

4. Expertise and the Oil Market

5. The Market Is Missing the Bigger Picture

6. How We See Oil Price Scenarios Playing Out

7. How China Is Rebalancing the Global Oil Market

8. Geological Constraints & the Cut Profile

9. Asia Is Moving Away From Middle Eastern Oil

10. Our Final Take on Oil

1. How We Analyze the Oil Market

Oil is the world’s most important commodity, and it is always the first market people turn to when a major global event unfolds. Our approach is simple: we follow the data and the macro picture, even when that leads us to a contrarian position. That is exactly where we stand today.

We believe oil prices above $100 per barrel are unsustainable. At those levels, energy costs begin to weigh on global growth, and consumers and businesses are forced to cut back on fuel consumption. That drop in demand is what brings prices back down. It has happened before, and we believe it is happening now.

The Evolution of Oil Prices Since 2020

While many focus on supply disruptions, we look at how the global economy reacts to higher price levels. History shows that $100 oil triggers a slowdown that eventually pulls prices back down. This cycle of demand destruction acts as a natural ceiling, preventing prices from staying elevated indefinitely.

Focusing on these economic reactions helps us anticipate shifts that the broader market often misses. When prices rise to a point where consumers and businesses start pulling back, spending data and real demand figures will show it before any forecast does. We watch for those signals carefully.

We believe an analyst should look past the fear and focus on what supply, demand, and inventory levels are actually saying. That is what keeps our positioning grounded when sentiment runs ahead of reality.

2. The Importance of Simplification

Since 2020, our approach to forecasting oil has been to keep things simple. It is easy to become overly bullish on oil. It can lead investors to ignore warning signals or dismiss them entirely, even when they are meaningful. We stay focused on the data and on real-world market conditions.

Our approach proved correct. We remained bearish from the peak in June 2022 all the way to the bottom in December 2025, and we have maintained that same view since the conflict in Iran began in late February 2026. Headlines move fast, but economic reality is what ultimately moves the market.

We believe successful analysis requires paying attention to changes in consumer behavior. High prices eventually reach a point where people can no longer maintain normal consumption. Tracking these real-world signals alongside the data helps identify the limits of oil prices before the broader market reacts.

In our view, keeping that focus on the consumer is what keeps analysis grounded in reality rather than in models that assume demand never breaks.

Key macro takeaway: Successful commodity analysis often requires looking beyond the desk and observing real-world conditions. What happens on the ground usually reflects the true picture more closely than models alone.

3. Why We Have a Contrarian View on Oil

Since the start of the conflict in Iran, we have maintained a bearish outlook on oil. The common bull argument suggests that lost production will lead to a massive shortage, forcing prices toward $150 or $200 as supply fails to meet global demand. We understand the logic, but we disagree with the conclusion.

The problem with many of these forecasts is that they stop adapting the moment prices do not cooperate. You cannot fight where prices want to go. It is like water.

Oil prices have not reached the extreme levels many predicted, and we do not see that changing. A shortage exists, but the data shows it is not severe enough to justify $150 or $200 oil. Markets tend to overestimate how bad a disruption will be and underestimate how fast buyers and sellers find alternatives. We have seen that happen repeatedly, and this time is no different.

3.1 Trump & the Midterm Pressure

Another major reason we are not bullish on oil prices is Donald Trump.

In the United States, midterm elections take place halfway through a presidential term. Every seat in the House of Representatives and a third of Senate seats are up for vote. They are essentially a public verdict on how the president is performing. For Trump, that vote happens in early November 2026, and oil prices are becoming a serious problem.

High energy prices hit American consumers directly, at the gas pump and in their electricity bills. When people feel that pressure in their daily lives, they blame the person in charge. Trump knows this. His approval ratings are already slipping, and the longer oil stays above $100, the more damage it does to his political standing going into November.

This gives Trump a real incentive to find a deal that reopens the Strait of Hormuz and brings prices back down before voters go to the polls. The Iranian regime understands this too. They follow American politics closely, and Trump’s midterm timeline is one of the few pieces of leverage they have left.

The clock is running. If Trump does not find a way to reopen the Strait before the summer, the damage at the polls will already be done. We do not think the market is fully pricing that pressure in yet.

4. Expertise and the Oil Market

A common question is what makes our view different from traditional experts. Oil is a commodity where excessive specialization can create blind spots.

We have seen this repeatedly across the industry, with Pierre Andurand being the most notable example. Andurand is widely considered a genius, holding 4 Masters degrees in fields like Mathematical Physics from Oxford and Astrophysics from London. Yet that depth of expertise can push an analyst toward complex models that end up missing the bigger picture.

The results speak for themselves. His flagship fund was down 15% in 2019, 55% in 2023, and 40% in 2025. The fund gained 31% in March, only to give it all back and more, slumping 52% in just the first half of April as prices retreated.

Volatile performance like that is a sign that the model is fighting the market instead of following it. Being an expert in a single field creates a narrow perspective that prevents seeing how different global forces interact.

Our approach avoids this by maintaining a flexible framework. We look at the entire macroeconomic picture instead of getting lost in the technical details of a single asset, and we believe that is what keeps our positioning accurate over time.

5. The Market Is Missing the Bigger Picture

Most people are only looking at a part of the picture. The data that supports a bullish view is easy to find right now, but the data that challenges it is just as important. We believe that when you look at both together, the case for extreme oil prices becomes much harder to make.

1. World Oil Supply vs Demand

Yes, a supply gap exists. Since 2021, global oil demand has consistently run above supply, meaning the world has been consuming more oil than it produces. That deficit has not disappeared with the conflict. What has changed is the direction. The gap has been narrowing steadily through 2025 and into 2026.

Supply from non-Middle Eastern producers has been growing, gradually closing the distance between what the world produces and what it consumes. The gap is narrowing, and that matters when assessing whether $150 or $200 oil is a realistic outcome. We do not believe those levels are realistic under current conditions.

2. Alternative Export Routes

This is the part of the story we think most people are missing. When the Strait of Hormuz closed, the assumption was that the oil stopped flowing.

But producers had other plans. Within weeks, exports were being redirected through two alternative routes: Yanbu Industrial Port on Saudi Arabia's Red Sea coast and Fujairah on the UAE's eastern coast.

The results are significant. Combined exports through these two routes have grown from around 2 mb/d in January to nearly 7 mb/d by April, adding roughly 4 mb/d of new export capacity in just a few months. That is a substantial and rapid adjustment that the market has been slow to price in.

The world adapted faster than most expected. Inventories remain comfortable, the supply gap is narrowing, and producers found alternative routes within weeks. The disruption was real, but the market absorbed it. That is why we do not see a fundamental case for oil staying above $100.

6. How We See Oil Price Scenarios Playing Out

We see oil prices staying in the $85 to $100 range for as long as the conflict in Iran remains unresolved. Even when the Strait of Hormuz reopens, we believe the damage to infrastructure and supply chains will take time to repair, and prices will not fall back to $70 quickly. We do not see oil breaking above $120 to $130 under current conditions. In our view, that kind of move would require the conflict to escalate into a much broader regional war involving multiple countries. We are not there, and we do not think we are heading there.

To support our view, we are going to walk through the data, because we think it challenges most of what you are hearing right now.

Start with US crude oil inventories. Levels in 2026 have been running above both the 5-year average and 2025 for most of the year, only beginning to ease slightly around April. They are one of the most reliable indicators in the oil market.

US Crude Oil Inventories

The logic is simple: when supply is genuinely tight and demand is outpacing it, stocks fall. Buyers draw down what is sitting in storage because there is not enough coming in to meet their needs. That has not happened here.

Despite the Strait of Hormuz closure, the US has maintained comfortable inventory levels throughout. In our view, that is a strong sign that the actual supply disruption is nowhere near as severe as the market has been pricing in.

The global picture confirms what the US data is already showing. Since 2022, world crude oil supply has consistently kept pace with demand, and that balance has held into 2026 despite the conflict. The demand line has been flat to slightly declining, while supply from multiple regions, including the US, China, and other non-OECD producers, has remained robust. A market where supply is meeting demand is not a market that justifies triple-digit panic pricing.

World Crude Oil Supply vs Demand

Taken together, these two charts make our case clearly. The fear driving oil prices right now is not supported by what is actually happening in the physical market. In our experience, that kind of gap between sentiment and reality always closes, and when it does, prices follow the fundamentals back down.

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7. How China Is Rebalancing the Global Oil Market

China’s crude oil imports are falling, and this is the first time we have seen a decline of this magnitude since 2024. The easy explanation is to blame the Strait of Hormuz closure, and while that plays a role, the Chinese economy was already slowing before the conflict began.

The Chinese economy is weak. Domestic demand for fuel is soft, and that was true before the conflict began. What China actually needs right now is LPG, ethane, and naphtha, the building blocks for its petrochemical industry. Crude oil and refined fuel products are a different story. We believe demand for both will remain limited, and the import numbers already reflect that.

We believe the difference between what China needs and what it is actually buying is important for anyone trying to read the oil market through the lens of Chinese demand. China is selectively importing what its petrochemical industry needs and pulling back on crude and fuel products.

The Strait of Hormuz disruption adds pressure, but the weakness in Chinese oil demand was already there before the conflict began. We think that ignoring this leads investors to overestimate where oil prices are heading.

8. Geological Constraints & the Cut Profile

Iran cannot cut production evenly across its oil fields. The nature of its reservoirs makes that impossible. Iran relies heavily on mature carbonate reservoirs, mainly the Asmari and Bangestan formations, which naturally decline at between 4% and 12% per year without constant pressure support.

Because oil flows through complex fracture networks in these rocks, any interruption in pressure maintenance can cause rapid and permanent damage. Once that damage occurs, that production capacity cannot be recovered.

Prioritizing Field Survival

Iran’s national oil company (NIOC) is focused on protecting three categories of fields above everything else:

• Shared Reservoirs: Fields like Azadegan and Yadavaran stay active because shutting them down risks losing oil to neighboring countries who share the same reservoir.

• Pressure Sensitive Fields: Bangestan group fields need constant pressure to keep oil moving through their networks. Any pause risks permanent loss.

• Gas Injection Fields: Iran reinjects billions of cubic feet of gas daily to keep fields productive. Stopping that process accelerates decline and reduces how much oil can ever be recovered.

Protecting these priority fields forces cuts onto a smaller group of assets, mainly older onshore southern fields like Ahvaz-Asmari and Gachsaran. These fields offer more operational flexibility, but decades of production have left them requiring more maintenance and less able to absorb sudden changes.

Impact on Export Blends

The geology determines what Iran can actually sell. Bangestan reservoirs produce the heavier Iran Heavy blend, while the shallower Asmari formations produce Iran Light, which normally makes up around 55% of exports. Because cuts are concentrated in specific areas, the mix of oil reaching Asian refineries will shift, with lighter grades likely seeing the biggest reduction.

Outlook: Higher Costs & Uncertain Recovery

With storage full and reservoirs at their limits, production cuts will begin immediately and deepen fast. President Trump has said the blockade stays until a deal is signed. Iran refuses to negotiate while the blockade is in place. That standoff is pushing Iran’s national oil company into costly workarounds.

Keeping reservoirs healthy during a shutdown requires constant well work and pressure management. Rather than shutting assets down completely, the company has to cycle production on and off, which drives operating costs higher.

As oil revenue shrinks, less money is available for the maintenance needed to protect long term capacity. The short term decisions being made today will result in permanently higher costs and lower production capacity for years to come.

9. Asia Is Moving Away From Middle Eastern Oil

India keeps buying Russian oil, and the volumes are growing. The thinking among Indian refiners is simple: keeping fuel affordable and supply reliable at home is more important than worrying about Western sanctions.

You can see it directly in the numbers. In March 2026, Russian crude imports into India surged by over 900kbd, pushing total Russian volumes to a record 2.25 Mbd. That is nearly half of everything India buys. These numbers have been building for months and show no sign of reversing.

Pricing & Sanctions Risk

Indian buyers are well aware of the sanctions risk and have been factoring it into their pricing for weeks. Premiums for May arrival Urals are currently averaging around $6/bbl above ICE Brent. Even after the record volumes seen in March, April arrivals held strong at 1.5 Mbd. India is paying a premium to keep the oil flowing, and that tells you how seriously it takes supply security.

Southeast Asia Joins In

When the Strait of Hormuz closed, Southeast Asia felt it immediately. With Middle Eastern barrels suddenly harder to access, countries across the region turned to Russia to fill the gap. Malaysia, Indonesia, and the Philippines are all actively securing Russian crude. Philippine refiner Petron bought over 2 Mbbls as an emergency measure. We think these countries will continue buying Russian oil even as the situation evolves.

Making It Permanent

India is now putting the infrastructure in place to keep these flows going. Its shipping authority recently added a Russian insurer to its approved list, allowing Indian tankers to move Russian crude without relying on Western financial systems. Supply security and cost come before anything else for India, and that decision reflects it directly. We believe the shift toward Russian energy in Asia is becoming a permanent feature of how the region sources its oil.

10. Our Final Take on Oil

Our view on oil has not changed. We remain bearish. The shortage is real, but manageable, and nothing in the data supports a permanent shift to triple-digit oil. China’s demand is weaker than most assume, Trump has a political deadline to resolve the conflict, and consumers are already feeling the weight of elevated prices. All of this points in the same direction. We see prices heading lower from here, and we will keep following the data as the situation develops.

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Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice.

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Why nickel today? It is a critical mineral that the market has punished heavily since 2023, largely due to oversupply. Indonesia is the biggest producer, and they rely heavily on this industry. It generates massive revenue for them, so you cannot blame them for overproducing. However, the more they produce, the more it distorts the supply and demand balance.

As you can see in the chart below, this is directly reflected in the price. When production floods the market and exceeds demand, prices naturally fall.

This dynamic is exactly why we stayed on the sidelines. It was simply too risky, the trend was fading, and the outlook was ugly. So why look at it now?

The story has changed, and we like the new setup a lot. We believe the risk/reward profile has clearly improved. With Indonesia significantly cutting production in 2026, the overall outlook is suddenly much brighter.

The reason we are writing this primer is simple. Aside from a great piece by Macquarie Commodity Research, we have not seen any other real deep dives into the nickel market. We think that is a mistake because this commodity deserves far more attention than it currently receives. It has the potential to be the next big mineral. While the demand might not reach the sheer scale of copper, nickel absolutely should be discussed just as much as lithium.

Table of Contents

1. Nickel Market Overview

2. What Is Nickel?

3. The Process of Producing Nickel

4. Why the World Will Need More Nickel in the Coming Decade

5. Breaking Down the Nickel Producers

   5.1 PT Vale Indonesia

   5.2 Norilsk Nickel

6. Our Favorite Nickel Miners

7. Indonesia Dominates Global Nickel Supply

8. Don’t Forget the Philippines

9. Key Risks to Watch

10. Our Final Take on the Nickel Market

1. Nickel Market Overview

We always begin our primers with a market overview, as understanding the broader dynamics of the nickel market provides essential context before diving into the specific details and the investment thesis.

Here is exactly what is driving the market today:

The Demand for Nickel. The global shift toward green energy is creating massive demand for nickel. The metal is absolutely essential for manufacturing the batteries that power electric vehicles and store renewable energy. Because production is concentrated in just a few regions, securing a steady supply of nickel has become a major concern for global supply chains.

Macquarie expects total nickel demand to grow 5.4% this year, reaching 3.7M tonnes. Higher stainless steel production in China will drive the majority of this growth. European stainless steel production should also recover as new trade rules restrict outside imports. Energy storage systems will create additional demand, growing by 16,000 tonnes to reach a total of 47,000 tonnes in 2026. However, if nickel prices climb too high, battery makers could switch to cheaper alternatives like LFP or sodium ion chemistries.

The largest nickel-consuming countries driving this demand are China, Indonesia, EU member states, Japan, the USA, and South Korea.

The Hidden Value in Nickel Mining. Extracting nickel brings additional financial value through important byproducts. The mining process also yields copper and platinum group metals. Copper is crucial for a wide range of industrial uses and the broader electric grid. Platinum group metals, including platinum and palladium, are necessary for building automotive catalytic converters and advancing fuel cell technologies.

Indonesia Changes the Rules. National trade policies directly control the global nickel market. In 2020, Indonesia banned the export of unprocessed nickel ore. The government made this move to force companies to build smelting and refining facilities inside the country. The goal was to create a strong domestic industry, attract foreign investment, and secure a dominant position in the global electric vehicle battery supply chain.

The Global Market Impact. The Indonesian export ban caused immediate disruptions in global supply and pushed nickel prices higher. It also completely shifted international trade flows. China responded by pouring investment directly into Indonesian nickel processing facilities.

While these policies made Indonesia the central player in the market, they also introduced lasting uncertainties for global pricing and supply chains.

Indonesian Policy Uncertainty. Today, Indonesia dictates the global nickel market. They supply China, maintain a near monopoly on production, and control recent supply growth. This makes global prices highly sensitive to their internal regulations. The Indonesian government set the 2026 mining quota between 260M and 270M tonnes, but local smelters will actually require between 320M and 330M tonnes.

This significant shortfall forces processing plants to rely on imports from the Philippines, a dynamic that supports higher nickel prices. However, miners can request additional volume in July, meaning strict quota enforcement remains uncertain. Furthermore, the government delayed a planned nickel export tax, adding another layer of confusion to the policy outlook.

The Government Strategy. Indonesian authorities worry about how miners use the remaining nickel reserves. They believe too much nickel goes to stainless steel mills rather than the electric vehicle industry. To fix this and stop the oversupply, the government put new rules in place.

Read more

We want to cut through the noise and look at how the global supply of oil has violently shifted compared to world demand over the past few months. We also want to highlight a hidden risk that could drive prices much higher due to unpredictable attacks on key infrastructure.

To be clear upfront, we do not believe oil prices will stay high forever. However, we see massive risk for prices to spike in the short term because current market prices completely fail to reflect the severe, real world shortage of oil happening right now.

This is a Pro-tier Macro update from Aurelion Research. On rare occasions, we share a preview of Pro content with all subscribers when the topic warrants broader visibility.

The Historic Supply Shock: Only the Beginning?

Just a few months ago, experts expected a massive oversupply of oil. Fast forward to the end of March, and the extreme fragility of the global energy trade is fully exposed. The closure of the Strait of Hormuz brought around 20% of daily global oil movement to a grinding halt. This instantly plunged the market into the largest supply shock in history.

Quantifying the Massive Shortfall. As detailed in the exhibit below, the initial closure removed a staggering 18.4M barrels daily from the global market. Emergency actions and alternative pipelines have managed to replace a portion of this loss. However, the world still faces a massive net shortage of 11.1M barrels daily. This physical roadblock makes the vast majority of the global backup oil supply completely inaccessible.

A Market Underestimating the Risk. We are now one month into this crisis. The immediate economic impacts are already severe, characterized by surging global prices and physical fuel shortages across Asia. Yet, conversations with industry insiders reveal a clear consensus. The broader market still does not grasp the true severity of the situation.

The Crisis Spreads West. Experts are now drawing direct parallels to the historic oil shocks of the 1970s. They warn that a prolonged closure will trigger an even larger economic fallout.

The localized fuel shortages currently squeezing Asian markets will rapidly spread westward. Europe remains highly vulnerable and will likely face surging prices as nations desperately bid to secure any available energy cargoes. As the global supply chain fractures, European markets are at severe risk of experiencing outright physical diesel shortages in the coming weeks.

The True Consumption Gap & Exhausting Lifelines

While previous sections outlined the massive physical supply shortfalls, the actual consumption math remains grim. Even factoring in reduced demand from Asia, the global market still faces a net 9M barrel daily deficit compared to pre-war levels. To put the sheer scale of that shortage into perspective, this missing volume exceeds the total daily oil consumption of the UK, France, Germany, Spain, and Italy combined.

Running Out of Temporary Fixes. The market is quickly burning through its temporary safety nets. Exceptional measures, such as issuing U.S. waivers on Russian & Iranian oil sanctions, have bought the global economy some crucial time. However, these are strictly finite lifelines. Once these emergency options are completely exhausted, global leaders will have virtually no tools left to artificially suppress prices without physically reopening the waterway.

The Unique Threat to Natural Gas

While crude oil has at least a few alternative pipeline routes, the situation for liquefied natural gas is entirely rigid. The final ships carrying Middle Eastern gas are arriving at their international destinations right now. Once they are empty, there are virtually no alternative physical routes to get that stranded gas to global buyers. Making matters worse, there are almost no strategic global stockpiles available to cushion a natural gas shortfall.

The North American Fortress. Retail gasoline and diesel prices have certainly jumped domestically, but the U.S. is structurally positioned to weather this crisis better than any other region. Geographically removed from the conflict and far less reliant on Middle Eastern transit, the American energy market is heavily protected. Furthermore, as the absolute largest exporter of liquefied natural gas in the world, the massive domestic gas market remains deeply insulated from the unfolding global chaos.

Ignoring the Noise & Assessing the True Risk

Political Talk Versus Reality on the Ground. The White House continues using public statements to try and force prices lower, with President Trump recently pushing oil below $90 per barrel on social media by claiming the conflict is effectively over. However, we see a massive disconnect between this political rhetoric and the reality on the ground. A legitimate peace deal remains highly unlikely right now. Both sides are deeply entrenched in their demands, and the potential deployment of American forces into the region points toward severe escalation instead of a peaceful resolution.

The Escalating Threat to Backup Shipping Routes. Given their focus on unconventional warfare, Iran and its allies are highly likely to target backup global supply routes to apply maximum economic pressure. With the Houthis entering the conflict this past weekend, the risk to passing cargo ships and vital infrastructure continues to climb.

We view the following backup transit points as highly vulnerable targets:

• The Saudi East to West Pipeline & Yanbu Port: This critical infrastructure allows up to 7M barrels of Saudi oil per day to bypass the Strait of Hormuz and load directly onto ships in the Red Sea.

• The Bab el Mandeb Strait: Located at the southern end of the Red Sea, this narrow passage historically handles 4 to 5M barrels daily. The number of potential targets here is currently very high because ships diverted from Saudi Arabia are crowding the area as they head south toward the Indian Ocean.

• The UAE Bypass Pipeline: Carrying nearly 1.8M barrels of oil per day, this pipeline represents another highly attractive target for disrupting regional exports.

Middle East Crude Chokepoints:

Our Call: A New Permanent Floor for Crude

Read more

Defensive names and those with heavy exposure to housing and construction have been left behind. The market is paying up for visible growth and has little patience for stories that need a broad economic recovery to work.

The chart above shows that the defensives premium over cyclicals has fallen back below its 10-year average and is now near the lower end of its pre-2020 range. Cyclicals may look cheap, but the key question is whether the earnings recovery is strong enough to support that re-rating.

Table of Contents

1. Chemical Markets Overview

2. Middle East Capacity Exposure

3. Global Chemicals as an Industrial Leading Indicator

4. Breaking Down the Chemical Stocks One by One: DOW, LYB, HUN & BAK

5. Polyethylene: A Major Catalyst for US Producers

6. Ethylene & Propylene: Tighter Supply & Rising Costs

Industry Developments

Several industry players also made strategic moves or received regulatory updates recently. In the energy sector, a major producer is increasing its capacity to meet rising demand for nuclear fuel components and is working closely with the government on future expansions. Regarding environmental milestones, an eco-friendly polymer recently received approval for use in agriculture, which should pave the way for its commercial launch.

In corporate news, one firm resolved a significant pricing dispute through a legal settlement, while an investment group substantially increased its ownership stake in a major coatings manufacturer. Finally, projections for the auto industry have been adjusted, with expectations rising for North American production while cooling slightly for the market in China.

1. Chemical Markets: The Potential Fallout

With conflict escalating in Iran and across the broader Middle East, several key chemical markets are facing meaningful supply risk. If disruption in the Persian Gulf persists and oil prices remain elevated, a select group of U.S. chemical producers could emerge as major beneficiaries.

That group includes Dow, LyondellBasell, Olin, Westlake, and Celanese. Higher oil prices raise production costs for competitors in Europe and Asia, which widens the cost advantage for U.S. producers.

The Methanol Factor

Iran plays a significant role in global chemicals, particularly in methanol. The country is the world’s second largest producer, accounting for roughly 11% of global capacity. Domestic consumption remains limited, which means more than 90% of output is exported, mainly to China and India.

China is especially exposed. The country imports roughly one quarter of its methanol needs, and more than half of those imports originate from Iran. That methanol feeds Methanol to Olefins facilities, which convert it into plastics such as polyethylene and polypropylene.

Those Chinese plants are already operating under pressure, with margins still weak. Any disruption to Iranian supply would likely force further production cuts. We believe the result would be tighter global plastics availability and upward pressure on prices across the chain.

2. Middle East Capacity Exposure

The Middle East accounts for a meaningful share of global petrochemical capacity. Around 15% of global polyethylene and ethylene capacity is located in the region, and roughly 9% sits inside the Strait of Hormuz. That leaves a large volume of supply exposed to any disruption in the area.

The concentration is important. The Gulf Cooperation Council represents ~9% of global polyethylene capacity and 6% of polypropylene capacity, while Iran adds another 3% of polyethylene supply and ~4% of ethylene capacity.

On their own, those shares may not look that large, but with so much capacity concentrated in one region, the risk to global markets rises. Feedstocks also add to the exposure. More than 37% of global seaborne naphtha passes through the Strait of Hormuz, mostly toward Asia. Since naphtha is a key input for steam crackers, any disruption would quickly raise costs and reduce flexibility for Asian producers.

If those flows are interrupted, the pressure would extend beyond direct production losses. Even assuming imported naphtha is redirected toward ethylene production, around 6% of global ethylene capacity could still face constraints. That does not include added pressure from crude imports used to make naphtha or LPG supplies for mixed feed crackers.

Altogether, the region holds an important position in both petrochemical production and feedstock trade. A prolonged disruption in the Strait of Hormuz would likely tighten supply, raise costs, and make the global chemical chain more difficult to balance.

3. Global Chemicals as an Industrial Leading Indicator

We close with Europe. Industrial chemicals are predominantly a European story, and right now, that story is not getting the attention it deserves.

Think about how the industrial chain actually works. Before a car gets assembled, before a house gets built, before a package gets shipped, someone has to order the chemical inputs first. That sequencing is exactly what makes this sector one of the best early reads on economic activity you can find. When chemical demand picks up, manufacturing follows. When orders soften, the weakness shows up here before it appears almost anywhere else, well before GDP prints or PMI surveys catch it.

The end market exposure makes that signal even more powerful. Chemical volumes touch housing, packaging, autos, appliances, and a huge share of everyday manufactured goods. A move in volumes tells you whether factories are rebuilding inventories, whether construction is gaining momentum, or whether downstream customers are still sitting on their hands. There is a lot of information packed into that number.

The cost side adds another layer that most people overlook. Chemical plants run on high fixed costs, so when utilization swings, it hits profitability hard and fast. Volumes rise, assets run harder, margins expand quickly. Volumes fall, earnings weaken just as fast. That operating leverage is why the sector tends to move sharply at cycle turns in both directions.

Miss the inflection and you miss most of the move.

Chemicals Sector Cost Structure Breakdown

Petrochemicals: Why Europe Runs This Market

The diagram below shows exactly how deep chemical inputs run into the economy. Natural Gas and Crude Oil feed into a Steam Cracker, which produces the core intermediates: Ethylene, Propylene, Butadiene, Aromatics, Ammonia, and Methanol. From there, the chain fans out into hundreds of end products touching nearly every corner of the economy.

Europe dominates this space because the industry was built there over decades, with dense clusters of integrated plants, deep engineering expertise, and long-standing trade relationships with both feedstock suppliers and downstream manufacturers. That history is not easy to replicate, and it is why European producers still set the tone for global chemical markets today.

Petrochemical Supply Chain Diagram

We have highlighted Insulation and Polyurethane Foam in red for a reason. Both are heavily tied to construction and housing activity, which is precisely the end market showing the earliest signs of a potential recovery in Europe.

When building activity picks up, these are among the first chemical derivatives to see volume growth, and volume flows directly into utilization rates at the plant level. Raw material costs, product mix, and geographic footprint determine how quickly a company benefits from a recovery.

A producer with low input costs and exposure to healthier end markets looks completely different from one facing weak domestic demand and a poor cost base. Getting that distinction right is where the real work lives. Chemical volume trends and utilization rates move before the shift shows up in broader data. We are watching this sector closely, and you should be too.

Stock Ideas: Air Liquide and WestLake

We will cover two names that stand out at this stage of the cycle.

Air Liquide is the higher quality name of the two. The French industrial gas giant operates with long term contracts, largely take or pay, which means volumes hold up even when the broader chemical environment weakens.

Air Liquide gives you exposure to a European industrial recovery with significantly less downside risk than most names in the sector. The company has compounded earnings reliably for years, carries a strong balance sheet, and trades at a premium that is historically justified. If European industrial activity accelerates, it will participate. If the recovery takes longer than expected, you still own a business that generates cash while you wait.

WestLake is a different kind of bet. The Houston based producer has significant exposure to PVC and chlor-alkali chemistry, both of which are closely tied to housing and construction demand. WestLake has been quietly building out its European presence, and the company benefits from a relatively advantaged feedstock position compared to many European peers still dealing with elevated energy costs.

When construction volumes in Europe start moving, WestLake is one of the names that feels it early and fast. The stock has underperformed the broader market over the past year, which is precisely why it is interesting now.

You are buying it before the recovery is priced in, and that timing is the whole idea. Both names sit at different points on the risk spectrum. Air Liquide is the patient, high conviction hold. WestLake is the higher beta way to play a faster recovery. Together they offer a sensible way to build exposure to a sector that the market is still underestimating.

4. Breaking Down the Chemical Stocks One by One

Now let’s get into what you are here for. What does all of this mean for DOW, LYB, HUN, and BAK? We go through each one.

The 2026 outlook for these names is shaped by a clear theme:

DOW and LYB recently received Buy upgrades as Middle East supply disruptions widen the cost advantage for North American ethane producers over naphtha-based peers globally. BAK sits in a different category, with its valuation tied to the final execution of the IG4 Novonor deal and the resolution of its Brazilian legal overhang.

First two : DOW & LYB

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Our Core Thesis on Oil

To be clear, we know this is a big call, but we do not see oil staying higher for longer. We believe Iran is now too weakened to sustain this move. While the market is reacting to headlines, the reality of a diminished Iran will soon bring prices back down. The fundamentals simply do not support a permanent shift to triple-digit oil, and we expect this premium to fade.

Geopolitical Tensions Pressure LatAm Equities

Escalating conflict in the Middle East drove a broad risk-off move last week, with Latin American equities selling off sharply and underperforming the broader emerging market index. All key markets posted weekly losses, though with some dispersion. The geopolitical shock pushed oil prices toward $120 per barrel, providing relative support to more oil-sensitive markets.

Bloomberg Country Index: Total Returns

Despite the recent setback, Latin America remains one of the best performing regions so far this year. Looking forward, the path will depend on the duration of the conflict and whether higher oil prices trigger inflation pressures that could slow down or reverse interest rate cuts. Even with those risks, we believe the region is well positioned to do just fine.

Does Oil at $80-100 Signals Weaker Returns Ahead?

Historical returns across oil regimes suggest prices above $100 per barrel would be a headwind for Latin American equities. Since 2000, the $40-$60 range has delivered the strongest average returns and hit ratios above 80% across key markets. Above $100, which Bloomberg Economics projects in a scenario of intensifying conflict, forward average returns have been the most negative for the regional index, though results diverge.

12M Fwd Returns by Oil Price Regime (Local FX)

Chile and Colombia underperformed, while Peru has posted positive returns on average with a hit ratio of 72%. With oil now in the $80 to $100 range, history suggests weaker performance ahead. A ceasefire that brings prices back toward $65 per barrel would offer a more supportive backdrop.

OUR TAKE ON OIL PRICES AND LATAM OIL & GAS

On our end, we don’t see oil staying higher for longer. We recently spoke with a top U.S. resources analyst who has a massive track record, including being short oil from $140 all the way down to $60. We always value his views plus find ourselves closely aligned with his take on aluminum, fertilizers, plus copper. Just like us, he believes Iran is now too weakened to sustain this move. We agree that oil prices won’t stay high for long.

Based on that, we think a long run range of $60 to $80 is a much more realistic baseline for the Latin American market. Because of this, we aren’t particularly worried about the $80 to $100 range that Bloomberg often points to as a danger zone for regional producers. Most major players in the region are far more resilient than they used to be. For example, Petrobras has managed to get its portfolio breakeven down to around $25 per barrel, while Ecopetrol is already planning its entire 2026 budget around a $60 Brent price.

This means they can still generate significant cash flow even if prices move toward the lower end of our range. The noise about higher prices being a “bad” thing for LatAm oil producers usually misses the fact that these companies have already lean-down their operations to thrive in a much lower price environment. Following the U.S.–Iran strikes, most of the market’s focus has gone to crude. For Brazil, the more immediate pressure sits in refined products. The country still relies on imported diesel and gasoline, so higher international prices feed quickly into domestic fuel economics. Petrobras stands at the center of that picture as Brazil’s largest fuel supplier.

Brazil Fuels: Price Increases Look More Likely

Our view is simple. If current oil prices held at these levels, Petrobras would eventually be forced to hike domestic fuel prices. However, since we expect oil to cool off plus return to the $60–$80 range, that pressure should subside before it triggers a major policy shift.

Since Petrobras adopted its new pricing framework in May 2023, it has moved away from reacting too quickly to global volatility. Instead, the company favors a smoothing strategy that allows domestic prices to lag international benchmarks during brief spikes. This approach works well for managing headlines plus uncertainty, but it becomes harder to sustain if the discount stays wide for too long.

Diesel Still Trades at a 7% Discount

Gasoline Tracks Closer at a 3% Discount

As of early March 2026, the data shows that PBR is already leaning into this strategy. Diesel is currently trading at a 7% discount to international prices while Gasoline is tracking much closer with only a 3% discount. Because we view the current oil rally as a temporary reaction to the situation in Iran, we believe Petrobras can successfully bridge this gap without needing a major price hike. As global prices settle back into our target range, these discounts will naturally close, keeping the domestic market stable while protecting long-term margins.

2. Fuel Distribution: Sourcing Mix Gains Importance

The second order effect hits the fuel distributors. Brazil still relies on imported fuel to meet its domestic demand, which means the real cost of getting supply rises with global prices regardless of how slowly Petrobras reacts. In this environment, distributors with better access to the company’s volumes are in a much stronger position.

We see Vibra and Ultrapar as the clear winners in this setup. By sourcing more of their fuel from PBR, they gain a massive cost advantage over smaller competitors who have to buy on the expensive spot market. Even though we expect this oil price spike to be short lived, this temporary gap allows these market leaders to protect their margins while others struggle to keep up.

This dynamic is especially important right now. While a brief price move just creates noise, a more persistent gap changes the earnings setup across the entire distribution chain. Since we expect oil prices to move back toward the $60 to $80 range, this specific advantage might be short lived, but it still allows these leaders to solidify their market position while smaller competitors struggle with the temporary volatility.

Tail Risk: Fuel Availability & Global Aftershocks

The main downside risk to watch right now is a temporary supply squeeze, particularly in diesel. Petrobras is no longer the sole supplier in Brazil, and since imports now play a much larger role in meeting demand, any hit to import economics or logistics could trigger local shortages. Brazil’s transport system is heavily dependent on diesel, so any disruption there would move quickly through the rest of the economy.

Even if we do not see this as the base case, it is a significant tail risk. On a broader scale, we are seeing global tsunamis but much smaller local effects. While the direct impact of the U.S. and Israeli operations against Iran has been somewhat limited in Latin America, net oil importers are still feeling the pinch in their trade balances.

The Monetary Impact

The main concern for the region is how central banks respond if higher oil prices begin to feed through more quickly into domestic inflation. If that happens, policymakers across LatAm could have much less room to ease than investors currently expect. That risk is especially relevant for Brazil, Chile, and Mexico, where rate cuts are already in focus. A renewed rise in fuel and energy costs could slow that process or pause it altogether.

For markets, the issue is clear: tighter policy for longer would weigh on growth and pressure the parts of the economy that are most exposed to financing costs.

Trade with Iran & Net Fuel Exports

The regional exposure is uneven, but the broader takeaway is clear. LatAm is more sensitive to oil shocks than most developed markets, especially when pass through into local prices is faster than usual. The policy response implied by the data is meaningfully larger than what we see across most developed economies.

Trade with Iran & Fuel Net Exports

Higher oil prices also create a monetary risk for LatAm. The region is more sensitive to oil shocks than most developed markets, especially when pass through into local prices runs high. In that setup, central banks may have less room to ease than markets currently expect.

We believe the growth impact from current oil levels still looks manageable, but inflation is the bigger issue. If oil moves higher from here, the pressure on headline CPI rises more quickly, which increases the chance that policymakers in Brazil, Chile, and Mexico slow or pause their easing cycles.

As you can see in the exhibits above, that would tighten financial conditions at a time when the region was expecting more support from lower rates. Overall, the key point is that the first order effect of higher oil is not only energy. It could also delay monetary easing, and we think that would widen the impact across equities, credit, and domestic demand.

The Aurelion Team

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice.

This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

1) Why tanker stocks are not rising despite record spot rates.

2) Whether the current tanker market strength is temporary or structural.

3) Which stocks are best positioned to benefit from the current market.

We bring expertise and a track record in the tanker industry to the table. This is rare in North America. While shipping analysts are usually found in Norway, Denmark, or Greece, they are scarce in the US, and in Canada, they are basically non-existent.

We currently see an exceptional tanker market. As many of you recognize, spot rates have jumped even higher. A red hot environment defines tanker shipping, and momentum remains clearly positive. The gap between available vessels and cargo demand widens fast. Rates have broken through previous highs, creating a profitable environment for owners of compliant ships. Some might view the move as a short-term spike, but a closer look reveals a global balance where limited ship supply keeps earnings high.

Red Hot Spot Market

The VLCC route from the Middle East to China recently topped $78,000 per day, marking a 12% increase in a single week. Suezmax rates from West Africa to Europe trade near $62 000, while Aframax rates in the North Sea hold at $55,000. Detours around risky or blocked routes are lengthening voyages, reducing available ship supply and driving tanker rates higher.

Because the demand to move oil over long distances grows faster than the fleet, the base for daily earnings has moved to a much higher level. This setup should allow top shipping companies to capture a larger share of a tight market, as the low supply of ships for immediate hire keeps rates elevated.

Now for the interesting part. Why are tanker equities down or flat while spot rates go up like crazy? We intend to go deep into this explanation in the following sections. Trust us, you do not want to miss this.

Why Tanker Stocks Are Ignoring the Rate Boom?

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Unless you live on a remote island with no internet or belong to one of the few “Uncontacted Indigenous” groups left on Earth, you have undoubtedly heard about the current conflict between the U.S. and the Iranian regime.

President Trump’s decision to launch strikes against Iran has put a massive portion of the global oil supply at risk. While the Islamic Republic produces ~3.3M barrels a day, making up 3% of global output and ranking as the fourth largest producer in OPEC, its true power comes from its geography.

The nation sits right on the Strait of Hormuz which serves as the primary shipping lane for about 20% of the world’s crude from suppliers such as Saudi Arabia and Iraq. This waterway is the primary chokepoint for global energy markets and the current conflict between the United States and Iran has significantly elevated the risk of physical supply disruptions. As you can see below, this is arguably the most critical oil transit point on the planet.

Global Oil Trade Chokepoint

Iran’s potential to retaliate by obstructing this narrow passage threatens ~30% of all seaborne oil trade. Regional exposure for major importers is substantial given that Persian Gulf exports represented nearly 50% of total Chinese oil imports in December 2025. This volume translates to ~38% of China’s daily consumption and highlights why Asian markets are particularly vulnerable to a surge in energy costs as this geopolitical crisis unfolds. Since the attacks on Saturday, tankers have already started avoiding the area.

Reports from Iranian media indicate that the Strait of Hormuz is effectively closed, and shipping data confirms this as vessels are now clustering on both sides of the passage. Since markets are shut for the weekend, the full price impact hasn’t hit yet. While there is no confirmed evidence that major oil production or export infrastructure has been directly targeted, the situation remains incredibly tense.

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Oil Refineries & Terminals in the Middle East

The following map shows how quickly this conflict has spread across the Gulf. Explosions were reported on Kharg Island, which is home to the main oil export terminal for Iran. Missile activity has also been recorded near U.S. military bases in Kuwait, Qatar, Bahrain, Saudi Arabia, and the UAE. There were interceptions over Riyadh, blasts heard near Dubai, and smoke seen near the Al Udeid base in Qatar.

The Persian Gulf Is Now a Frontline in the US-Iran War

Even if energy facilities aren’t the primary targets right now, the high concentration of military incidents around the Persian Gulf creates a massive risk for accidental hits on shipping lanes, terminals, or storage hubs. Since ~20% of the world’s oil flows through the Strait of Hormuz, even a short blockage would severely tighten global supply and send prices skyrocketing.

Iran’s Oil & Gas Assets: What to Watch

Since 2020, Iran has managed to push its oil production up from under 2M barrels a day despite facing heavy international sanctions. They have gotten quite good at navigating these rules by sending ~90% of their exports directly to China. Most of this oil comes from the Khuzestan province, specifically from massive deposits like Ahvaz, Marun, and the West Karun cluster.

Iran’s Oil & Gas Assets Overview

The refining side is equally important. The historic Abadan refinery, in operation since 1912, has a capacity of more than 500,000 barrels per day. Iran also depends on the Bandar Abbas and Persian Gulf Star complexes to process crude and condensate, an ultra light oil produced in large volumes domestically. Even the capital, Tehran, operates its own refinery to help secure internal fuel supply.

Kharg Island sits at the center of Iran’s export system. It is the primary logistical hub in the northern Persian Gulf, equipped with multiple loading berths and storage facilities capable of holding tens of millions of barrels. On Saturday, the Mehr news agency reported an explosion on the island. Details remain limited, and the oil terminal was not specifically identified, but the situation is being closely watched.

To keep revenue flowing, Iran relies heavily on private Chinese refiners that purchase its crude at significant discounts, as they are among the few buyers willing to overlook U.S. sanctions. These shipments are typically transported by a shadow fleet of older tankers that switch off their tracking transponders to avoid detection by U.S. authorities.

China Leads Oil Flows Through Hormuz

As the data below shows, China is the largest destination for oil traveling through the Strait of Hormuz. In fact, 38% of all the oil passing through that waterway is destined for China, which makes it the most exposed major economy to any disruption in the flow of crude from the Gulf.

Iran’s Position in the OPEC Supply Balance

Despite years of sanctions and volatility, Iran remains a powerful force within OPEC. The country accounts for ~12% of the group’s total production, which solidifies its position as the organization’s fourth largest producer.

To see where the rest of the supply comes from, Saudi Arabia leads the group at 34%, followed by Iraq at 15% and the UAE at 12%. Kuwait contributes 9%, while the remaining 18% comes from all other member states combined.

Iran Is OPEC’s Fourth-Largest Producer

While Iran’s share is smaller than that of Saudi Arabia, the volume is still substantial enough to sway the entire market. Any major loss of Iranian output or exports creates a significant gap in the OPEC supply chain. We believe a disruption of this scale immediately tightens the group’s effective balance and forces other members to ramp up their own production to prevent a global shortage.

What Happens Next? Scenarios

Now that we’ve covered why Iran matters to the oil market, the next step is determining which scenario becomes the base case. Oil prices will move as the odds of these outcomes shift. The decision tree is simple and starts with whether the current leadership survives or collapses. A collapse would bring a political change such as democracy, a new ruler, or total chaos, and markets usually trade that uncertainty first if the transition looks messy. If the leadership stays in power, the next driver is how they choose to retaliate.

A symbolic response would maintain a risk premium in crude without causing a lasting supply shock, whereas a significant response involving strikes on regional bases or shipping is where the real upside risk originates.

This is where oil could gap higher, but any sustained move needs an actual hit to supply rather than just headlines. With crude expected to open around $80 on Monday, a jump from $70, a move toward $90 is plausible if tensions stay high. While a prolonged and extreme scenario involving a disruption of the Strait of Hormuz could theoretically push oil to $110, this outcome is unlikely since the waterway is the primary source of income for the Iranian leadership and closing it would effectively force their surrender.

We believe the most probable path leads to $90-100 because this range reflects the immediate war premium and higher shipping and insurance costs during a conflict. While the situation is tense, a move to $120 or higher looks unlikely because the global market is oversupplied and OPEC+ still has significant spare capacity that can stabilize prices. In addition, Iran depends on oil revenue for regime survival, so a full closure of the Strait of Hormuz would amount to economic suicide and offers no viable long term strategy. With these supply buffers in place and major buyers already holding large inventories, the market should find a ceiling before extreme levels, and anyone calling for $120 to $160 as a base case is overstating the situation.

Iran’s Risk Premium in Crude

The current market data from Bloomberg highlights that geopolitical risk has already contributed a six dollar premium to the price of oil as tensions between the U.S. and Iran escalated throughout early 2026. This premium has risen steadily alongside major events such as the movement of a massive naval armada and reports that the nations are moving closer to a major war.

Iran’s $6 Risk Premium in Oil to Rise After Attacks

While demand factors and other supply shifts have fluctuated, the geopolitical contribution represented by the pink portion of the chart is now the primary driver keeping prices elevated above their January baseline. This data confirms that the market has transitioned from theoretical concern to pricing in a significant risk of physical disruption which currently accounts for the bulk of the recent move toward eighty dollars per barrel.

The Gulf Risk Premium Returns

The analysts who expected a quick, limited strike were wrong. For months, major firms argued that the government’s concern over the cost of living would keep any military action small. With midterms approaching, they assumed the downside of a long conflict was too large, effectively betting that economic optics would shape military strategy.

That bet has failed. The conversation has moved past narrow strikes on missile sites. The conflict has widened, and early assumptions of containment have broken down. Reports of retaliation across the region, combined with fresh concerns around Kharg Island and the Strait of Hormuz, have forced investors to reprice the entire range of outcomes.

Oil Prices Show a Rising Risk Premium

The chart above captures the upward shift in the oil risk premium. As the perceived odds of U.S. action climbed, Brent moved higher alongside them.

The price response was meaningful, but one to two weeks ago it still read like an early-stage repricing. Probability moves first, then the physical market follows once disruption becomes visible. Now the picture looks different.

Following this week’s escalation, crude oil has moved sharply higher as the market shifts from treating conflict as a distant tail risk to a core pricing reality. We are now witnessing a tug of war between two powerful and opposing forces. Escalation risk supports a significantly higher risk premium while political constraints favor a compressed timeline and intense pressure to limit economic fallout. From here, we believe the market next move will be dictated by physical realities such as whether vital shipping lanes remain open and whether export and refining infrastructure continues to operate normally as global markets reopen, so nothing is played out yet.

How to Position From Here

First of all, the following information focuses on what to avoid by looking at historical patterns. The most sensitive sectors should be avoided, while the least sensitive ones should be viewed as opportunities if a drawdown becomes overdone in macro and market sentiment, that is where we specialize in identifying value and where we generate most of our alpha.

What We Would Avoid:

The regional investment narrative during this conflict centers on the stability of Gulf energy infrastructure, logistics, and human capital mobility. While the initial equity market reaction would likely be a drop lower, investors will focus on the duration of the conflict and any medium to long term disruptions to these core sectors. Historically, the most vulnerable stocks in the region are real estate developers such as ALDAR, EMAAR, and Dar Al Arkan due to risks surrounding demand and pricing. Mobility names like Air Arabia and Parkin are also at risk from traffic impacts and higher oil costs, while ADNOC L&S faces potential trade and operational disruptions.

Gulf Equities Reaction to ‘12-Day War’ in 2025

On the defensive side, Saudi Aramco remains the primary option due to its exposure to higher oil prices, though this only holds true if production and exports remain uninterrupted. Because these names are currently the most vulnerable, they should be avoided for the time being.

Where We See the Best Risk Reward:

It is likely you are most interested in identifying specific investment opportunities during this period of volatility. We believe that avoiding areas with excessive risk or overcrowding is the primary strategy for the short term. Canadian equities and the mining sector should perform well while defense stocks also offer a strong hedge. On the other hand, Latin America remains largely disconnected from this specific conflict and we continue to view Brazilian equities as undervalued with a compelling risk-reward profile.

While oil equities are an obvious choice, we believe that product tankers, crude oil tankers, and even dry bulk carriers will benefit significantly and deliver exceptional performance. According to a Tankers Opinion from Poten, there is very little risk that freight rates will decrease regardless of how the situation unfolds. The chart below illustrates this point clearly.

As we have mentioned many times before, the tanker market is already extremely tight with rates near historic highs and under these conditions the risk is entirely to the upside. We view this as a primary buying opportunity that is more attractive now than ever before.

The following two sections are bonus segments because they do not provide direct insights on the current situation but instead highlight historical events. Our goal is for these sections to help you learn how the market reached its current state by providing a clear view of the past.

How Oil Shaped the Modern World

To capture the history of oil prices since 1920, it helps to look at the moments where politics and supply collided. The founding of OPEC in 1960 was a turning point, intended to stabilize the market, yet the decades that followed were often defined by volatility tied to disruptions in the Middle East.

Oil Price Since 1920

1. The Era of Major Shocks

The 1970s really set the stage for modern energy anxiety with two massive price shocks. During the OPEC oil embargo of 1973-74, prices actually x4. Not long after, the 1979 Iranian oil crisis caused prices to double again, cementing the idea that energy security was tied directly to global stability.

2. The 21st Century Rollercoaster

Moving into the 2000s, a perfect storm of soaring global demand, conflict in the Middle East, and a weakening U.S. dollar pushed prices to a record peak of $145 per barrel in July 2008. That high was short-lived, as the Global Financial Crisis sent prices crashing below $40. However, the recovery was swift, with prices bouncing back above $100 within just two years.

The mid-2010s introduced a new variable: the U.S. shale revolution. Between June 2014 and January 2016, prices plummeted from $115 to $28. This decline was intensified by geopolitical maneuvering between Russia and the Middle East, leading many to speculate about the end of OPEC. Of course, prices eventually recovered as global growth picked up speed.

3. Recent Volatility & Current Trends

The start of this decade brought unprecedented swings. In 2020, the combination of supply shocks and the collapse of demand during the pandemic forced prices down to $20 per barrel before they began to rebound. We saw another major spike in 2022 following the Russian invasion of Ukraine, but that momentum eventually cooled.

As of January 2026, the market has settled significantly, with crude oil trading around $65 per barrel. This recent decline is largely attributed to ongoing concerns about a global recession dampening demand.

The Persistence of War

If you look at the last 600 years, it is pretty clear that war was the rule and peace was the rare exception. Since the year 1400, more than 150M people have lost their lives in various conflicts. What is even more staggering is that over 100M of those deaths happened just since the start of the 20th century.

600 Years of War

1. A Shift Toward Peace

Surprisingly, the 21st century flipped that script and made peace the new normal for a while. By the time 2011 rolled around, the number of deaths from armed conflict had dropped to its lowest point in 275 years.

Even though we have seen those numbers climb again over the last decade, the context is still important. In 2023, the death rate in armed conflicts was about 2 per 100,000 people. That is remarkably low when you compare it to the peak in 1948, when the rate was 112 per 100,000.

2. The Modern Reality

However, the return of war to Europe is a heavy reminder of the past. The current struggle involving Russia, Ukraine, and NATO actually marks the 487th military conflict in Europe over the last two thousand years. This tension is driving a massive surge in defense budgets, with NATO members committing to increase their spending by $700B before 2034.

At the same time, the ongoing tech war between the United States and China is forcing both economies to step up government intervention. They are pouring money into technology and defense for reasons of national security, which signals a major shift in how these global powers operate.

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The Aurelion Team

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice.

This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

Brazil holds the world’s greatest untapped rare earth potential, but its current production is a tiny fraction of its massive resource base. In 2024, Brazil produced only 20 tonnes of rare earth oxides, while China dominated the market with 270,000 tonnes by leveraging over half of the world’s reserves.

The country currently produces almost nothing despite holding a massive share of the world's rare earth reserves. This creates a striking gap where Brazil sits on 14% of global reserves, second only to China, yet its production remains near zero. In contrast, the United States maintains an 11% global share of production despite holding a much smaller reserve base.

Brazil Rare Earths: Untapped Reserves

To bridge this gap, the Brazilian government is rolling out a broader strategy to turn the country into a major player. This includes the R5bn Critical Minerals Fund, the R1bn Strategic Minerals Investment Fund, and a R$1bn fund backed by BNDES and Vale. At the same time, new rules make it easier for mining projects to access tax incentives through special bond structures, while a national council provides financial guarantees to reduce risk.

We believe the long-term objective is simple: develop processing capacity at home and move Brazil higher up the global critical minerals supply chain.

Rare Earths 101

Before turning to Brazil and what we think comes next, let’s first look at some essential basics about rare earth elements and their uses.

Why Do They Matter?

Rare earth elements (REEs) are the backbone of the global energy transition. Their unique magnetic and chemical properties make them essential for electric vehicles, wind turbines, and advanced electronics.

While they are not actually rare in nature, it is very difficult to find them in high enough concentrations to mine profitably. As the world moves toward clean energy, securing a steady supply of these minerals has become a top priority for both governments and private companies.

What Are They?

There are 17 rare earth elements in total. They are split into two main groups:

• Light Rare Earths: These are more common and are often found in large rock deposits. This group includes elements like Neodymium, which is used in powerful magnets.

• Heavy Rare Earths: These are much harder to find and usually come from specific clay deposits. Elements in this group, such as Dysprosium, are vital for high-tech applications because they can handle extreme heat.

Where Are They Found?

Even though rare earths are spread throughout the Earth’s crust, they are rarely found in large, concentrated batches. Most of the world’s light rare earths come from major mines in China, Australia, and the United States. Heavy rare earths are even more concentrated, with the majority of the global supply currently coming from southern China.

Key Applications

While REEs are used in everything from camera lenses to medical imaging, permanent magnets are the most valuable part of the market. These magnets allow EV motors to run efficiently and wind turbines to generate power. Even though they make up only a small part of the total volume of rare earths mined, they represent the vast majority of the industry’s economic value.

Magnets Are the Main Application

(Primary Uses of Each Rare Earth Element)

How Strong Is the Demand Outlook?

Global demand for rare earth elements is surging as the world shifts toward electric vehicles and renewable energy. A specific blend of elements called NdPr has become the industry’s biggest bottleneck. It is the essential ingredient for the high-efficiency magnets used in everything from EV motors and wind turbines to advanced robotics and defense systems.

1. Rising Demand Led by Permanent Magnets

Experts forecast that demand for NdPr will grow by ~7% every year through 2030. By then, the world will likely need 97,000 tonnes of it annually, which is 50% more than what was needed in 2024. Most of this growth is driven by the transition to clean energy, with electric cars and wind power alone making up 75% of new demand. Meanwhile, rising global tensions are pushing governments to secure more of these minerals for strategic military use.

Bloomberg Sees ~97Kt NdPr Demand by 2030

E-Mobility & Consumer Electronics Drive Demand

2. EVs: The Primary Catalyst for Demand

Electric vehicles are the most significant driver for rare earth magnet demand. Industry forecasts suggest that automotive requirements for neodymium and praseodymium could jump by over 80% between 2024 and 2030. Permanent magnet motors are the top choice for electric vehicle powertrains because they are highly efficient. Using just two kilograms of rare earth magnets in a motor can boost its efficiency by up to 5%.

Global EV Demand Set to Keep Rising

This is a massive advantage for car manufacturers. Better efficiency means they can reach their driving range targets with smaller and lighter battery packs. Since batteries are often the most expensive part of an electric car, reducing their size helps lower the total cost of the vehicle.

Why Isn’t Brazil a Rare Earth Powerhouse Yet?

Brazil’s rare earth sector faces structural barriers that slow its growth. The most immediate problem is financing. Unlike other major mining regions, Brazilian firms cannot use mining rights or future production as collateral. This limits domestic credit and forces developers to look for foreign funding. While public institutions like BNDES and Finep have created programs for strategic minerals, access remains difficult due to strict requirements.

Without flexible financing and with strong competition from countries that already have mature supply chains, Brazil struggles to move beyond early-stage production. Compounding these financial issues is the lack of a joined-up national strategy. The sector still lacks policies that connect mining with processing and manufacturing. This is a challenge because mining only represents 10 to 20% of the total value. Separation and refining capture about half of the value, and making magnets accounts for another 30 to 40%.

Trade data makes the situation even clearer. Brazil’s rare earth exports are almost entirely raw materials, showing that the domestic industry is still in its early stages. Because the country cannot yet refine or process these minerals at scale, it must import high-value oxides and compounds, mainly from China.

Brazil Remains a Net Rare Earth Importer

In 2025, Brazil’s rare earth exports reached a record $13.3M, a significant jump from $3.6M the year before. However, nearly all of these shipments went to China. This reflects the growth of Serra Verde, Brazil’s only major mine, but total production is still small compared to global demand.

As a result, Brazil exports raw materials while importing finished goods, including 84% of its hybrid vehicles. This dynamic prevents the country from capturing the full value of its own natural wealth.

2025 Exports Surged on Serra Verde Start-Up

The export surge is only part of the story. While raw shipments jumped after Serra Verde began operations, Brazil still imports a huge volume of processed rare earth products. The trade balance for these high-value materials remains negative, highlighting the lack of local refining and magnet manufacturing.

Processed Rare Earths Minerals Trade Balance

Essentially, Brazil currently exports raw concentrates while relying on foreign refining for finished goods, a cycle we believe prevents the country from capturing the full economic value of its own mineral wealth.

Can Brazil Attract Global Trade Partners?

The United States is showing significant interest in Brazil to build alternative rare earth supply chains. Former officials point to Brazil as a critical mineral superpower and a strategic focus for reducing dependence on China.

This interest is backed by action: the US International Development Finance Corporation recently provided a $465M loan to Serra Verde. Following this deal, Serra Verde canceled its long-term contracts with Chinese buyers, with those shipments set to end by the close of 2026. Since China is the biggest producer of rare earths, why move away from them? The goal is not just about finding a better buyer, but about building a better partnership.

While China has been a reliable customer, the relationship has mostly focused on Brazil exporting raw materials and importing expensive finished goods. By shifting toward partners who offer technology and investment, Brazil can stop being just a supplier and start processing its own wealth.

At the same time, Brazil is expanding its partnerships beyond the West. In January 2026, Brazil and Saudi Arabia agreed to work together on strategic minerals. This agreement includes a joint working group to find new investment opportunities and expand geological mapping across Brazil.

A key part of this partnership involves Saudi Arabia’s Public Investment Fund (PIF) and Manara Minerals, which is already a partner in Vale Base Metals. Both countries are focused on building processing plants in Brazil so they can add more value to the minerals before they are exported.

Market Volatility & China’s Pricing Gap

The global rare earth market is currently split by a massive price difference between China and the rest of the world. In early 2026, Chinese export controls have driven international prices for heavy rare earths like dysprosium and terbium to levels five times higher than those inside China.

China’s Influence on Rare Earth Pricing

For example, while dysprosium sells for around $200 per kilogram in China, it costs nearly $1,000 everywhere else. This price gap exists because China still refines around 90% of the world’s rare earths. By controlling the processing stage, China can keep domestic costs low for its own manufacturers while restricting the global supply. To fight this, the United States and its allies are creating price floors and new supply chains. We believe these efforts are designed to protect Western mining projects from price swings and ensure they remain competitive, even if China increases supply.

Summary of Brazil’s Main Projects

Brazil is currently positioning itself as a global leader in ionic clay rare earth projects, leveraging a favorable geological environment to develop multiple sites across the country. Early exploration has confirmed significant potential primarily in Minas Gerais, Goiás, and parts of Bahia.

Most Projects Are Concentrated in Minas Gerais and Goiás

In our view, the grades observed in these Brazilian ionic clay systems are highly competitive with global benchmarks. For instance, exploration in southern Minas Gerais has returned metallurgical recovery rates as high as 81.7% for total rare earth oxides, with magnetic rare earths accounting for over 60% of the yield. This high concentration of magnet metals is a critical advantage that we believe will accelerate Brazil’s transition from a raw material exporter to a central player in the global high-tech supply chain.

LREEO Dominates Project Share

Aclara Resources (ARA.TO): A Compelling Vertical Integration Play

Aclara Resources offers a differentiated strategy for gaining exposure to heavy rare earths. Listed on the TSX since 2021, the company maintains strong backing from major shareholders Hochschild Mining and CAP.

Aclara is advancing a "mine-to-magnet" strategy built around three core divisions that transition the business from simple resource extraction to high-value processing and end-market products.

Vertical Integration Strategy

Aclara is developing an integrated platform spanning mining, separation, and downstream metals and alloys to feed permanent magnet production. This strategy aims to control more of the value chain, enhance supply security for customers, and reduce reliance on China for critical processing steps.

1. Aclara Resources: Mining & Ionic Clay Assets

Aclara intends to produce mixed rare earth carbonates from two primary ionic clay deposits in Chile and Brazil. The Carina project in Nova Roma, Goiás, hosts probable reserves of 165.4M tonnes. These assets are significant due to their heavy rare earth weighting.

Carina Project

Production from these sites could represent ~16% of the dysprosium and terbium volumes produced by China in 2023. These elements are critical inputs for high-performance magnets that must remain reliable under extreme heat, and they are well represented in its resource base.

2. Aclara Technologies: U.S. Based Separation

Aclara Technologies focuses on converting mixed rare earth carbonates into high-purity rare earth oxides. The company is developing a separation facility in Louisiana, positioned as a key processing link in a Western supply chain.

Because separation remains a primary bottleneck outside China, we think a domestic facility would increase supply security, improve commercial flexibility, and strengthen Aclara’s competitive position as Western buyers seek dependable alternatives.

3. Aclara Metals: Alloys & Magnet Precursors

Through a joint venture with CAP, Aclara intends to produce the finished metals and alloys used by permanent magnet manufacturers, specifically targeting demand tied to electrification. A pilot facility in Chile is currently testing the metallization process using oxides from its own production.

We expect the full-scale metallization facility to be located alongside the separation plant in Louisiana, supporting a centralized U.S. manufacturing hub and optimizing logistics across the processing chain.

Financial Outlook & Operational Maturity

The company’s financial profile through 2033E reflects a shift from capital-intensive development to operational maturity. EBITDA is expected to turn positive in 2028E and grow steadily into the early 2030s as mining and processing reach full scale. Free cash flow follows is expected to follow the same path, moving from negative during the investment phase to sustained positive generation once the projects are fully operating.

The cash balance declines between 2026E and 2028E, bottoming in 2028E due to peak capital spending and development costs. From 2029E onward, cash begins to recover as EBITDA expands and free cash flow stays positive.

This follows a typical development curve for a high-quality mining asset. The near-term cash drawdown is needed to unlock operating leverage and long-term cash generation, positioning it as a leader in the heavy RE market.

EBITDA Growth & Balance Sheet Recovery (2025E-2033E)

Valuation & Upside Potential

From a valuation perspective, analysts estimate a significant upside with a net asset value per share of $4.39, or C$6.15. This reflects the high economic potential of the Carina and Penco projects as they move toward production.

RBC Valuation Framework

In our view, this valuation framework highlights the massive latent value within Aclara’s portfolio. The company is currently trading at a level that we believe fails to account for its unique position as a vertically integrated heavy rare earth producer. As the market begins to price in the 2028 production milestones, we expect this valuation gap to close.

We are not buyers of Aclara yet, but we are watching it closely. The stock’s discount to NAV is not especially compelling for an asset that is still a few years from production, so we think caution is warranted. That said, it could become a strong opportunity later as the timeline de-risks.

Our Final Take

Brazil is now moving from potential to power. While the country has always had the reserves, it lacked the focus and the right partners to scale. Today, that has changed. With new 2026 agreements and massive funding from the United States and Saudi Arabia, we believe Brazil is building the foundations for high technology processing at home.

In our view, Brazil has the best chance in the Western Hemisphere to challenge the Chinese monopoly. They are the only ones with the right geology and a government willing to trade market access for technology.

While the road to full magnet production will be difficult, the current momentum suggests they will succeed. We think Brazil is finally ready to stop being a raw material supplier and start being a strategic leader.

The Aurelion Team

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice.

This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

As we approach 2026, we are initiating an in-depth analysis of the oil sector and provide 2 actionable investment ideas.

This commodity remains a primary driver of the global economy and influences industrial activity in ways that can exceed market expectations.

It is essential to global infrastructure and serves as a key input for many industrial processes. While we recognize that oil is difficult to forecast for both equity performance and spot pricing, we enter 2026 with a bullish view on oil spot prices and oil equities.

World Oil Supply & Demand Into 2026

When it comes to oil, there are a lot of moving parts to consider before forming a clear view of crude. So we start with where the market stands today on demand and supply, then connect that to spot prices.

Headline forecasts lean toward a looser balance into 2026. Demand growth slows from the post pandemic rebound, while supply growth stays firm, led by non-OPEC producers in most models. The mix also shifts, with OPEC+ contribution moving year to year as policy changes, while non OPEC barrels account for a larger share of incremental supply into 2026 and 2027.

Exhibit 1: Global Oil Growth Slows & The Supply Mix Shifts

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Rising oil production, firm refinery margins, sanctions friction, and a tight global fleet keep spot earnings strong across crude segments. VLCC rates remain high, and modern fleets with strong spot exposure continue to capture this strength into early 1Q 2026. Supply growth stays limited through the back half of the decade, and aging fleets restrict expansion. The overall setup is steady and durable for crude tanker operators with the right mix.

Frontline (FRO) and Okeanis (OET) stand out in this environment.

FRO benefits from meaningful VLCC exposure and strong cash generation, reflected in its solid Q3 2025 performance. OET delivers consistent operations with attractive relative value. Together they offer clean access to the current tanker cycle and reliable capture of near-term earnings strength.

The sections that follow provide our full analysis. Investors can access the charts, the cycle drivers, the comparative positioning, and the valuation work that shape our view of this tanker market.

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The Gold Repricing: What Comes Next

Gold’s rise through 2025 marks a decisive change in how investors perceive value and policy credibility. The move above US$4,000/ounce represents a lasting reassessment of money and credit, driven by conditions that are broad, persistent, and global in scale.

Expanding fiscal deficits, high sovereign debt, and the fading reliability of real yields have reshaped the investment landscape. In this new environment, gold has reclaimed its place as the ultimate reference point for confidence, stability, and long-term purchasing power.

Our Expectations

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We believe these results confirm that the chemical sector is beginning to recover after a long downturn. Profitability is improving as companies focus on efficiency, capital discipline, and targeted growth.

For Huntsman, this is an encouraging sign. We hold the stock in the Aurelion Index and covered it in depth earlier this year, seeing it as one of the best positioned names for a cyclical recovery in chemicals.

The same forces driving rebound, including firmer margins, a more focused portfolio, and improving demand, are starting to support as well and point to a more positive outlook for 2026.

Market Environment & Demand Context

LYB reported that demand is still weak in most end markets in Europe and North America, especially in construction and automotive. Packaging and healthcare remain more stable, and polyethylene demand is starting to level off.

In the United States, polyethylene sales are beginning to recover after two years of decline, while in Europe, demand has grown about 3 percent since the start of the year.

Figure 1: Mature Markets Showing Signs of Recovery

Commentary: This chart shows the first signs of a rebound in polyethylene volumes in both North America and Europe. The trend suggests that mature markets are starting to return to normal as downstream inventories are cleared.

We believe this early recovery indicates that the destocking cycle is mostly complete. For Huntsman, volumes in polyurethanes, coatings, and performance products should now be steady, with potential for gradual improvement through 2026.

Feedstock costs remain high in North America, and imports continue to pressure margins in Europe, but the focus across the industry has shifted toward efficiency and reliability. It’s cost discipline and broad product mix should help it protect earnings as market conditions slowly improve.

Global Demand Trends & Long-Term Drivers

LyondellBasell’s presentation highlighted the continued strength of global polyolefin demand. Over time, demand for polyethylene and polypropylene has consistently returned to its long-term growth trend after each slowdown.

Mature markets remain the largest consumers per capita, while emerging economies add most of the new growth through expanding populations and rising income levels.

Figure 2: Resilient Global Demand Growth for Polyolefins

Commentary: This figure shows that global polyethylene demand keeps growing faster than GDP, driven by urbanization, higher consumer spending, and steady investment in infrastructure. These trends highlight how essential these materials are to everyday life and global development.

We believe this creates a strong foundation for long-term growth. Growing populations and better living standards in India, Africa, and Southeast Asia are lifting demand for basic materials, while mature markets are shifting toward uses in electrification, energy, healthcare, and mobility.

For Huntsman, this matters because its portfolio is increasingly focused on these higher-value areas such as coatings, insulation, and adhesives. This should help it capture growth as global demand gradually improves.

Capacity Rationalization & Industry Rebalancing

The most significant strategic signal from LyondellBasell’s quarter is the acceleration of capacity rationalization. Global ethylene closures and idling are expected to reach about 21M tonnes by 2028, representing roughly 10% of current supply.

Figure 3: Capacity Rationalization Trends Accelerating

Commentary: This figure shows the large wave of ethylene capacity cuts expected across Asia and Europe, led by China, Europe, and South Korea. China has already announced over 6M tonnes of closures, while Europe plans ~5M due to high costs and tighter regulations.

We believe this is a positive shift for the sector. Removing high-cost capacity will help tighten supply and support better pricing. For HUN, a more balanced feedstock market should improve profitability in propylene oxide and downstream materials, marking a move toward a healthier and more efficient global industry.

Strategic Direction & Peer Comparison

LyondellBasell remains focused on cost efficiency, reliability, and careful capital use. Management reported better uptime at the Channelview and Hyperzone plants and outlined a Cash Improvement Plan through 2026 to raise productivity.

HUN is also moving ahead with its MoReTec-1 recycling project in Germany, showing a clear shift toward recycling and higher-value growth. We believe this direction reflects what many producers across the sector are now doing. The focus is moving from growth to profitability, debt reduction, and better asset use.

Four themes stand out: tighter cost control, rationalization of high-cost capacity, a greater push into specialty products, and selective investment in recycling. This more disciplined approach is setting up the industry for a gradual and healthier recovery.

Sector Outlook & Our View

LyondellBasell expects market conditions to stay soft through late 2025, though signs of stabilization are emerging in North American polyethylene and intermediates. We believe the overall backdrop will be similar for the broader chemical space, with gradual demand improvement and firmer margins supported by ongoing cost discipline and tighter portfolios.

The sector is moving from contraction to normalization. Capacity reductions and more disciplined pricing should allow slow but steady progress even as demand remains uneven. Europe continues to lag, but lower supply is helping to restore balance and support margins.

For 2025, we see a transition period where volumes hold steady and efficiency gains begin to lift profitability. By 2026, the setup should be more favorable, with a gradual recovery in earnings as global markets strengthen.

Huntsman Corporation Trade

We believe the risk-reward is compelling at current levels. The industry appears to be bottoming, and Huntsman’s share price is near historical support. With supply tightening and margins set to recover, this looks like the right time to position before a potential re-rating.

Key Takeaways

• Polyethylene demand in North America and Europe is recovering, signaling the end of the destocking phase.

• Global polyolefin consumption continues to grow with population and income, supporting long-term stability.

• About 10% of global ethylene capacity could close by 2028, tightening supply and improving pricing.

• Cost control, capital discipline, and greater focus on specialty products are creating a stronger base for the next recovery cycle.

• We believe the sector is entering a more constructive phase, with 2026 likely marking the start of a multi-year improvement in returns.

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

The latest advance has come on the back of a series of supply disruptions. Freeport-McMoRan’s force majeure at Grasberg, the world’s second-largest copper mine, has removed a major source of output after heavy flooding earlier this year.

Production in Chile, Peru, and the Democratic Republic of Congo has also been affected by weather events and labor disputes, keeping inventories under pressure and reinforcing expectations of a tighter market through year-end.

Easier monetary conditions have added another layer of support. The FED shift toward rate cuts has weakened the dollar and revived investor interest in cyclical assets. Copper now sits at the crossroads of reflation, infrastructure investment, and structural energy demand, giving the rally a broad base of financial and industrial momentum.

Supply Still Leads the Market

Prices remain well above the ten-year average as supply constraints continue to shape the market. Demand growth has been steady but limited, with Chinese construction still subdued and export orders uneven. The Shanghai premium, a useful gauge of physical buying, hovers near US$50 per ton, just under its 2020–2025 average. Overall, trading conditions point to a market that is firm but contained.

The longer-term outlook for copper continues to be supported by electrification, renewable power, and grid investment. These structural trends remain in place but will unfold gradually over the coming years. Price strength today is driven mainly by supply constraints, with little evidence of stronger industrial demand.

China Shapes the Outlook

China remains the main driver of global copper demand, accounting for about half of total consumption. The rest comes from Europe, the United States, Japan, and several other regions. Domestic construction has weakened, manufacturing activity is uneven, and export volumes remain under pressure, which together have kept buying interest subdued in recent months.

Policy choices in Beijing will set the tone for the next stage of the market. Broader support for construction, renewable energy, or electric-vehicle infrastructure would translate into a faster pickup in consumption. For now, demand remains stable, and prices continue to respond mainly to developments on the supply side.

Aurelion Research View

We see copper’s performance this year as the result of tight supply and shifting policy conditions across key markets. Production setbacks have shown how limited output flexibility remains in major mining regions, while easier U.S. monetary policy has improved liquidity and encouraged broader participation in commodities.

In our view, prices should stay firm through the remainder of the year, supported by low inventories and ongoing supply constraints. A lasting move above US$11,000 per ton would require stronger industrial demand from Asia, led by a clearer pickup in Chinese consumption.

We continue to regard copper as a key indicator of global economic momentum and an essential material for the long-term transition toward electrification and renewable infrastructure.

Disclosures

This report is for informational purposes only and is not a recommendation to buy, sell, or hold any security. Aurelion Research is not registered with the AMF or any other regulator and does not provide personalized advice. All content is based on public sources believed reliable but may change without notice; you should verify independently and consult a licensed advisor. Use only where legally permitted.

About Aurelion Research. Aurelion Research delivers independent, institutional‑grade equity analysis on publicly traded companies, blending rigorous financial models with strategic insights. © Aurelion Research. All rights reserved

The tanker market is entering the fourth quarter of 2025 with rare momentum. VLCCs are already earning six figures on benchmark routes, and the rally has developed in a stable trading environment rather than being sparked by geopolitical shocks.

Underlying conditions explain the strength. The fleet is aging, new-building remains muted, and regulatory measures continue to reduce effective capacity. Voyages are taking longer, available ship-days are shrinking, and each additional cargo puts pressure on a fleet that has little slack left.

The timing makes this setup even more striking. September is typically the weakest month of the year, yet earnings have held at levels normally associated with winter peaks. That reversal of seasonal norms matters.

History shows that when Sept. begins strong, the fourth quarter almost always compounds the move. In our view, 2025 is aligned with that pattern, and the stage is set for one of the most compelling finishes to a year the market has seen in recent memory.

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The key question for Q4 is whether gold’s bull market will keep building momentum, slow down, or pause before the next leg higher. After one of the strongest years on record, the answer depends on how policy, deficits, and global demand interact in the months ahead.

Gold enters the quarter with a $400 rally already behind it and a pause after reaching US$3,700/oz. Rather than signaling exhaustion, the market is showing signs of consolidation at elevated levels; building a platform for what could come next.

Three forces stand out at this stage:

• Growth momentum is fading and real rates are easing.

• Heavy U.S. refinancing keeps a fiscal premium embedded in yields.

• The dollar depends on a perfect disinflation path while Treasury supply stays high; an unlikely mix in an election year.

The physical market is also resilient. Central banks continue to diversify reserves, Asian buyers are active at higher prices, ETF flows are stabilizing, and futures positioning is still light compared with past rallies.

Our view:

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1. Executive Summary

Americas Gold & Silver (USAS) is entering a pivotal stage. After years of uneven results and financial strain, the company has reshaped itself into a focused silver producer. Its future is now tied to two core assets; the Galena Complex in Idaho and Cosalá/EC120 in Mexico; while the Relief Canyon mine in Nevada remains on care & maintenance, ensuring management’s attention is fully on silver growth.

The investment case rests on two execution priorities:

• EC120 ramp-up: moving from test concentrate sales to full commercial production by the end of 2025, increasing silver output and improving copper revenues.

• Galena upgrades: mine improvements focused on lowering costs, raising output, and unlocking extra value from antimony recovery (>90% recovery confirmed in testing).

Financial flexibility has been reinforced. A $100M term loan ($50M drawn) secures growth funding, while the recent 1-for-2.5 share consolidation reset the capital structure, reducing shares outstanding to ~272M.

Yet valuation remains depressed. USAS trades at only 0.3–0.4× NAV and under 4× EV/EBITDA, compared to peers at 0.7–1.0× NAV and 6–7× EV/EBITDA. The market has not priced in EC120’s commercial start, Galena’s cost improvements, or the potential contribution from antimony.

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MP is moving from buildout into scale.

The magnet line is producing customer-qualified parts, deferred revenue from GM is converting to shipments, and Stage II yields are advancing toward 85%. These milestones are supported by a long-term NdPr price deck near $125/kg and a balance sheet carrying $1.8B in net cash.

The operating base is strengthening, execution risk is receding, and customer traction is becoming visible. This combination marks the shift toward a scaled earnings profile with meaningful strategic optionality.

What’s driving value?

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Shipping runs on time and distance. Add a few days to a voyage, cut a knot of speed for compliance, or shift where cargoes are loaded, and suddenly a chunk of the fleet is gone without scrapping a single hull. That’s the market we’re in.

Policy layers on a steady surcharge security detours and canal delays lengthen routings, and sanctioned trades absorb older ships. At the same time, the fleet is aging, scrapping has been minimal, and yards remain busy and expensive. Small physical changes keep compounding into big earnings outcomes.

This is why today’s cycle is supply-driven and more durable than equities suggest. Longer routes and slower steaming raise ton-miles per barrel; compliance and vetting push charterers toward modern steel; costly newbuilds slow renewal.

The outcome is simple: freight rates hold at a stronger floor, daily swings are bigger, and ship values are backed by steady cash. The winners will be owners who keep their finances solid, run younger fleets & use charter cover with balance, securing income when it helps but keeping enough ships open to benefit when the market improves.

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1. An Older Fleet: A Higher Floor

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Markets face pressure on multiple fronts: tariffs on key trading partners, weaker employment data, and renewed concerns over stagflation are weighing on equities. At the same time, precious metals are showing relative strength.

As of August 1, gold has moved above $3,340/oz (+1.34% on the day), while silver holds near $36.83/oz. Mining equities are following suit, with several names posting gains against a weaker market backdrop.

This report presents a concise, data-driven review of seven mining holdings; highlighting core assets, valuation metrics, upcoming catalysts, and current positioning. It offers a clear framework for investors seeking both resilience and upside as market conditions shift.

Policy & data shock hit markets simultaneously.

• Tariffs: The U.S. announced sweeping import tariffs ranging from 10% to 41%, including 35% on Canadian goods.

• Labor data: July payrolls rose by only 73,000 versus 110,000 expected, and unemployment edged up to 4.2%, deepening concerns about growth.

• Market reaction: S&P 500 futures fell about 1% as capital rotated toward defensive assets.

• Metals rally: Gold surged +1.34% to $3,341.99/oz and silver gained +0.43% to $36.83/oz, extending their recent leadership.

Takeaway: Rising uncertainty strengthens the case for miners; defensive through gold exposure, leveraged through copper and silver upside.

Our filtering lens

Each position in the portfolio satisfies five core criteria:

1. Visible near-term catalysts: concrete drivers.

2. Manageable capital intensity: low to moderate capex and limited execution risk.

3. Regulatory clarity: strong permitting visibility.

4. Economic substance: tangible project economics.

5. Portfolio discipline: measured position sizing (sub-10%).

Our Current Mining Portfolio

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At the time, three structural shifts were driving long-haul demand: rising OPEC+ supply, growing Asian refining capacity, and the rerouting of Russian crude. Vessel supply remained constrained, and investor interest was low, making it a classic early-stage setup.

As of mid-July, the setup has intensified, not just due to fundamentals, but because geopolitical friction and sanctions enforcement are creating new dislocations in global oil flows.

Geopolitics Elevated, But No War

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