Citi warns of copper market disconnect, sees hedging opps for energy producers

Citi warned of growing risks in commodities markets, as copper prices surged this week despite what analysts see as weak fundamentals, while oil and gold markets reacted to heightened tension in the Middle East.

In a note first published on Thursday, Tom Mulqueen, Citi’s head of metals research, said copper could rise as high as $15,000-$16,000/t in the coming weeks, driven by Chinese investor flows following precious metals momentum and dollar weakness.

Prices on Thursday breached Citi’s near-term $14,000 target, with LME prices hitting $14,400, before tumbling back later that day and continuing to retreat on Friday. 

However, Mulqueen cautioned the rally is increasingly detached from physical demand.

“We have low near-term price conviction,” he said, adding that selling outside of China and “soft physical fundamentals” suggested a correction was likely.

Citi’s forecast was for an average copper price of $13,000/t for 2026.

In energy markets, Maximilian Layton, global head of commodities research, said oil remains vulnerable to Middle East tensions, particularly around Iran.

The US may pursue actions that degrade Iran’s missile and nuclear capabilities, but both sides are expected to avoid full-scale conflict.

“We expect that the US administration will balance national security and domestic political economy issues by considering actions against Iran that diminish its nuclear and missile related capabilities, in the hope of dealing with the existing or new leadership over time.

“Iran’s regime is not expected to disproportionately respond, as it does not want war either, as it is facing a faltering economy and civil unrest.”

On oil and gas, strategist Anthony Yuen noted the hedging opportunities for producers and refiners, especially with oversupply anticipated later this year.

“The current surge in prices of oil, as well as European gas and Asian LNG, provides a rare price-protection opportunity for oil and global gas producers,” he said, as well as those who need to sell farther-dated gas amidst an anticipated oversupply ahead.

He added: “While military action, especially a prolonged one, could push oil and global gas prices higher, the duration and impacts remain uncertain, with the potential for rapid price declines if it looks like a repeat of Jun’25, or if the US and Iran negotiate.”