Commodities are offering investment opportunities beyond energy as geopolitical tensions and weather patterns reshape market dynamics, according to UBS strategists.
UBS highlighted the Middle East as a key risk factor for oil and refined products, even as Iran and Oman near an agreement on Strait of Hormuz access. The bank noted that stepped-up U.S. sanctions could counterbalance any easing of regional tensions. Brent crude futures traded near $87 a barrel on August 26, while European natural gas (Dutch TTF) held around €65 per megawatt-hour, just below a three-year high reached earlier in the week.
Agricultural markets also showed strength, with wheat surging 6.6% to a three-year high and corn rising 2.7% to the same level on August 26. UBS attributed the gains to weather-driven supply concerns, including an 80% probability that the current El Niño develops into a very strong or "super" episode by year-end. Forecasters estimate a 97% chance that El Niño conditions persist into 2027.
Beyond energy and grains, UBS pointed to industrial metals as a long-term opportunity, citing structural demand from AI infrastructure build-outs and electrification trends. The bank also expects gold to remain supported by central bank reserve diversification, despite near-term headwinds.
UBS recommended a diversified, regularly rebalanced approach to commodity exposure, favoring active management over passive strategies. The strategists noted that commodities have exhibited a 0.44 correlation with global equities since 1999, positioning them as both a return driver and inflation hedge in multi-asset portfolios.
