Fertilizer shortages to continue, even as oil flows resume – AOTH

Even though crude oil and total export volumes from the Persian Gulf have recovered or surpassed pre-war levels, oil and refined product prices remain high due to extreme logistics costs, damaged refining capacity, and ongoing security risks.

As reported by The Wall Street Journal, total Middle East daily oil flows surpassed pre-war averages (averaging over 24 million barrels a day), supported by U.S. protection and alternative transit routes. However, prices stay high for several key reasons.

• Navigating the Strait of Hormuz during the U.S.–Iran conflict requires high-risk military escorts and improvised logistics.

• Supertanker charter rates have spiked dramatically (from roughly $30,000 per day prior to the conflict to as high as $1.2 million per day), and transit costs have jumped from about $2 to over $30 per barrel.

• Freight charges that once accounted for about 3% of oil’s market price now make up roughly 27%.

While crude oil exports have largely bounced back, refined-product exports (such as gasoline, diesel, and jet fuel) from the Persian Gulf remain at only 20% to 50% of pre-conflict levels.

Early strikes in the war damaged regional refineries that have not yet fully resumed operations.

Major exporters like Russia have also seen steep drops in diesel exports, leaving global inventories thin and driving up “crack spreads” (the profit margin between a barrel of crude and refined fuel).

Traders view the current U.S.-protected shipping corridors as precarious. The continuous threat of attacks means markets are pricing in the ongoing risk of a sudden supply cutoff rather than just looking at today’s flow volumes.

Oversupply

Major institutional forecasts project that Brent crude oil prices will decline significantly in 2027. While prices spiked in late 2026 due to escalation in the U.S.–Iran conflict and attacks on energy infrastructure, analysts widely anticipate that an emerging global supply glut will overtake demand by 2027, pulling prices downward.

The International Energy Agency (IEA) has issued structural warnings regarding a major oversupply problem hitting the market by 2027. Global production capacity is projected to surge, fueled largely by non-OPEC+ nations in the Americas, outpacing global demand growth by several million barrels per day.

In a “base-case” scenario where shipping conditions through the Strait of Hormuz normalize, the global oil market is expected to swing from a 1.8 million barrel-per-day deficit in 2026 into a massive 4.1 million barrel-per-day surplus by 2027.

If conflict intensifies or inflicts structural long-term damage, Goldman Sachs warns Brent could spike to $140 per barrel in 2027. Conversely, rapid normalization coupled with accelerating EV adoption (particularly hitting demand in China) could push prices down to the $60s.

Price relief split

Price relief will be highly split heading into 2027, with metals and industrial chemicals seeing clear downward trends, while agricultural fertilizers face an extended, painful pricing plateau.

A dramatic divide is emerging between the industrial sector and the agricultural supply chain.

According to a report by consultancy firm CRU released at London Metal Exchange (LME) Week, sulphuric acid prices will extend their decline in 2027. Prices delivered to top copper producers like Chile are projected to plummet to $215 a metric ton by Q4 2027, down from an extreme, war-driven record high of $451 earlier this year.

Note that while processed acid is falling, raw elemental sulphur remains critically bottlenecked at the Strait of Hormuz, maintaining a deep divergence between industrial chemical markets and agricultural inputs.

Roughly half of the global sulphur supply is stuck behind the Strait of Hormuz or locked in Russia. This raw sulphur shortage has sent input costs skyrocketing by 130%, prompting China to implement export bans.

North Dakota State University (NDSU) projections indicate that fertilizer prices will plateau at highly elevated levels well above pre-war averages through 2028. For 2027, DAP is projected to average $666/ton (up from traditional baselines but down from its $901 peaks), while Urea is expected to stabilize near $496/ton.

Driven by central bank accumulation, gold is forecast to march even higher, climbing from its 2026 average of $4,515/oz to $4,840/oz in 2027.

AOTH
aheadoftheherd.com

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