Citi's "Latest Commodity Outlook": "Tactically Bullish" on Crude Oil and Precious Metals, "Structurally Bullish" on Aluminum, Copper Prices "May Peak Within a Month"

Amidst a confluence of geopolitical uncertainties and supply shortages, the commodity market stands at a critical inflection point. According to Zhui Feng Trading Desk, on January 14th, Citi's research team published a report outlining their outlook for commodities in 2026. Citi pointed out that the crude oil market is driven by geopolitical premiums in the short term, with an upside price target set at $70, but faces dual headwinds of supply surplus and policy pressure in the long run. Precious metals are having a moment in the spotlight, with silver expected to outperform gold, with target prices pointing to $100 and $5000 per ounce, respectively. Aluminum is viewed as the commodity with the most structural opportunities, teetering on the brink of its most severe supply shortage in two decades. Although copper prices may reach $14,000 by mid-year, Citi warns that January could very well mark the annual price peak. Geopolitical premiums are supporting a short-term surge in crude oil. The current trajectory of the crude oil market is heavily dependent on the evolution of geopolitical risks. Citi believes that the recent escalation of tensions involving Iran and the Russia-Ukraine situation, coupled with export disruptions in countries like Kazakhstan and Libya, are pushing Brent crude towards the $70 per barrel level. This is seen as a tactical rebound opportunity, providing a window for producers to hedge against future downside risks. However, this upward momentum lacks long-term sustainability. Citi expects geopolitical risks to ease somewhat in the second half of 2026, while the global market remains fundamentally oversupplied. More importantly, the Trump administration's pursuit of low oil prices and the approach of the US midterm elections in November 2026 will both exert significant policy pressure on oil prices. The frenzy in the precious metals market, with silver potentially being the biggest winner. In the precious metals sector, Citi also adopts a tactically bullish stance. The report forecasts that silver will continue to outperform gold, with a near-term target of $100 per ounce, while gold will reach $5,000. This prediction is based on current market momentum and fund flows. However, similar to the logic for crude oil, Citi believes that these extreme price levels themselves will become triggers for producers and central banks to hedge against downside risks. The report implies that rational participants should consider taking protective measures once prices reach these target levels. The bullish narrative for precious metals is linked to broader "hard asset" allocation and currency devaluation concerns, but the sustainability of this trend carries inherent risks. Diverging fortunes for industrial metals aluminum and copper. Industrial metals present two distinctly different narratives. Aluminum is listed by Citi as the top pick for structural bullishness, citing the metal heading towards its largest supply deficit in twenty years. Supply constraints driven by rising global electricity costs lend the aluminum bull market considerable resilience, with a short-term target of $3,400 per ton and a medium-term outlook towards $3,500. In stark contrast is the outlook for copper. Citi is tactically bullish on copper prices up to $14,000 per ton, but explicitly states that its conviction has "significantly weakened" compared to December last year. Investors' net long positions are already at historically high levels, and this rally, driven by financial inflows and macro sentiment, is highly dependent on the continued injection of liquidity. Citi believes that, barring unexpectedly positive macro developments, the current price increase has already priced in most of the potential upside, and January is likely to be the annual price peak. Citi's baseline forecast is that copper prices will eventually retreat to a more sustainable level around $13,000 per ton, as this price level would theoretically balance the global market for 2026. However, Citi has raised the probability of its bull scenario—which includes copper reaching $15,000/ton and aluminum reaching $4,000/ton—from its usual level to 30%, reflecting a higher likelihood of price increases. Short-term respite and long-term caution for lithium battery materials. The lithium market has recently experienced a rebound of over 50%, primarily due to delays in the restart of CATL's mine and short-term shortages triggered by policy tightening. Citi has raised its three-month target price for lithium carbonate to $25,000 per ton, mainly reflecting downstream battery manufacturers' forward purchasing needs and the current tight inventory situation. Although short-term data appears very strong, Citi maintains a cautious stance on the long-term trajectory of lithium prices. The bank believes the current price level is sufficient to stimulate potential supply restarts, and incremental output from mines in regions like Africa will be gradually released over the next six months. Once the seasonal demand peak of the first quarter passes, lithium prices will face downward pressure as they revert to fundamentals. A standoff between bulls and bears in natural gas and agricultural products. Against the backdrop of the energy transition, the natural gas market faces the challenge of long-term oversupply. Citi holds a bearish stance on LNG and European TTF natural gas, believing that a clear oversupply cycle will begin globally from 2027 onwards. With the release of new production capacity from US shale plays like the Haynesville and Permian Basin, Henry Hub prices are expected to fall back to around $3.6 by 2027. European TTF natural gas will face a similar situation; although winter supply and demand are tight in the short term, in the long run, the market must induce more demand switching through lower prices to absorb the impending flood of new supply. In the agricultural sector, Citi holds a bullish view on most commodities. Coffee prices face adjustment pressure due to inventory build-up and changes in tariff policies, but sugar prices, after a year of sharp declines, are nearing a bottom. With strengthening import demand from China and the shift of Brazilian sugarcane towards fuel ethanol production, sugar prices are expected to rebound in 2026. Overall, Citi's report serves as a sobering dose of reality for the currently booming commodity market. It advises clients to utilize short-term, sentiment and event-driven rallies for risk management, while concentrating long-term bets on commodities with solid structural deficits, such as aluminum.