Starting 2026 with a Bang

The market surplus we’re seeing is due to a steep rise in production outside of OPEC+ countries. The United States, Canada, Brazil, Guinea and Argentina were the main contributors to this growth, which accounts for around 60% of the 3 MMb/d gain posted in 2025. Given the current supply trajectory in these countries, plus the expected increases from OPEC+ members, the International Energy Agency predicts that global production could grow another 2.5 MMb/d in 2026. For now, the market is absorbing these surpluses by stockpiling them, especially China. Finally, it seems increasingly unlikely that Venezuelan production will expand in 2026, as the country’s economic and political situation has been paralyzed since US intervention in January.

Canada’s oil industries are starting 2026 on solid ground, but will face greater competition south of the border, particularly on the Gulf Coast, as US refineries increase their imports of Venezuelan crude. Canadian production peaked at about 6.6 MMb/d in November 2025, before pulling back a bit in January. In total, Canadian supply increased by about 0.2 MMb/d in 2025 and we’re expecting an additional gain of around 0.1 MMb/d in 2026. The United States is still Canada’s largest market by far. Even with the Trans Mountain Pipeline, diversification to China remains limited. Given the recent abundance of heavy crude, the price spread between WCS (Western Canadian Select) and WTI widened from US$13.00 in December to $16.00 in January (graph 1). We expect it to grow further as Venezuelan barrels gradually enter the US market External link..

In the United States, oil sentiment remains fragile. Activity in the natural gas sector is down, according to the latest Dallas Fed Energy Survey External link.. Light crude production should turn negative in 2026, its first contraction since 2020, as producers reassess their investments in the face of lingering uncertainty. This more cautious environment is explained by a combination of many factors: lower refining margins, higher operating costs in several basins and greater volatility in crude oil prices. Despite this, US production is expected to reach a new peak of around 21.5 MMb/d in 2026, albeit with a more moderate pace of expansion than in recent years. In short, the US sector is beginning 2026 with less momentum and more uncertainty, even as supply continues to grow. Price trajectory in the coming months will be a deciding factor in whether or not the sector resumes investments and picks up strength.

Refinery utilization in the United States has been hovering around 94% since December, well above the 89% average seen in the past five years. This high production has kept the North American market well supplied and contributed to a decline of approximately 3% in gasoline prices since December. In Canada, prices followed a different trend. The national average price rose 1% due to weaker production, the result of production stoppages in some refineries this fall and the annual carbon intensity reduction set by the Clean Fuel Regulations (CFR). According to the Office of the Parliamentary Budget Officer External link., CFR compliance will cause production costs for Canadian refineries to rise. This should, in turn, push gasoline prices up by an average of 2 cents per year. Despite these upward pressures, we expect gasoline prices to remain stable in 2026, in line with the expected trajectory for oil prices.

Henry Hub prices briefly rose above US$7.4 per MMBtu on January 28, as a wave of intense cold swept through much of the United States (graph 2), driving up energy demand for heating. But the return of more normal temperatures, combined with sustained US production, proved this surge to be temporary. At the time of writing, prices were back down to around US$3.20 per MMBtu. Future demand is still highly uncertain, though. China has held up fairly well against US tariffs up to now, and its industrial production appears to be little affected, which has helped to maintain the natural gas price floor. Europe continues to increase its natural gas imports from the US as it looks to replace gas previously sourced from Russia. However, the European industrial sector has been sluggish since the pandemic, which is limiting renewed demand. We expect Henry Hub to end 2026 at around US$3.60 per MMBtu.

While aluminum prices did rise in December and January, that was mainly because global supply was more limited. In China, aluminum output reached its 45‑million‑tonne production cap; unless Beijing raises this ceiling, no additional growth is permitted. What’s more, technical problems have forced two smelting facilities in Mozambique and Iceland to shut down or curtail production. This was on top of the wave of speculative commodity trading that took place in January, which helped drive aluminum prices even higher. While there was a slight correction, the price is still up around 6% from early December 2025. Demand remains buoyed by the reindustrialization and remilitarization of the West, as well as the energy transition. We’ve therefore raised our year‑end target to US $5,300 per tonne to incorporate the fluctuations observed last month. Market expectations seem to be gradually shifting from a production surplus to a slight deficit for 2026, which may lead to greater price volatility over the year.

Despite the tariffs and ambient uncertainty, Canadian aluminum smelters performed remarkably well in 2025, with domestic output up 7.9% (graph 3). Although exports to the United States fell by 44% between January and November, producers managed to offset much of this decline by shifting sales to other markets, particularly in Europe. Thus, total exports declined by only 10% for the 2026 as a whole, and unsold inventory seems to have been stockpiled. However, the situation has been more dire for manufacturers of aluminum products. The rolling, drawing, extruding and alloying industry declined by 20%, and exports of manufactured products fell by 40% in 2025. The concerns for Quebec’s aluminum industry are therefore mainly focused on manufacturing, not primary production.

But there’s still hope for manufacturers, as preliminary data from the US Trade Administration point to an increase in US imports of aluminum products in December. This may indicate that stockpiles are starting to run low south of the border. The United States relies on imports to meet domestic demand. However, it remains to be seen whether this trend will continue in the coming months.

Copper prices have trended comparably to aluminum for similar reasons. The temporary closure of the Grasberg mine in Indonesia—the world’s second‑largest copper mine, responsible for about 3% of global output—continues to tighten global supply. The latest available information suggests that production is not expected to resume until the second quarter. Raw ore shortages have also forced many refineries, particularly in China, to announce production cuts.

Potential new US tariffs on copper are another upside risk. By June 30, 2026, the US Department of Commerce must provide an update on how effective current tariffs have been in stimulating the domestic copper markets. Based on this report, the Trump administration may apply a new 15% tariff on cathodes and other refined copper products starting on January 1, 2027. There’s also a risk that the White House could expand the list of products currently subject to these tariffs in the coming weeks or react more quickly following June’s report. Nevertheless, the current price of copper appears to be slightly higher than the fundamentals would suggest. Demand related to artificial intelligence, which was a major driver in 2025, is likely to grow more slowly. We’ve already seen a slump in data centre construction. In the longer term, however, the trend is still clearly to the upside, with demand expected to grow faster than supply, according to S&P Global. Electrification needs related to the energy transition (+81% by 2040) and renewed demand for AI (+127% by 2040) will be behind most of the gains (graph 4). Copper is therefore likely to rally quickly and end the year around US$12,000 per tonne.

A new short squeeze hit the nickel market last month, albeit a much smaller one than in 2022. The January 2026 short squeeze was triggered by a decision by Indonesia—which accounts for 40% of global nickel supply—to reduce its production quotas after several years of flooding the market. This approximately 30% output cut was generally welcomed by the industry, particularly by Western producers that were contending with prices below their break‑even point. When the announcement was made, several institutional funds had to quickly revise their expectations, moving from an oversupply scenario to a much more balanced market. As a result, these funds were forced to hedge their short positions, driving nickel prices up even further. Although nickel has since fallen from its recent peak, we’ve increased our price forecast. Our year‑end 2026 target is now US$16,500 per tonne. 

Iron ore bucked the broader trend in base metals at the beginning of the year, falling by around 3% (graph 5). The new Simandou mine in Guinea, the world’s largest iron ore extraction site, has begun shipping its output, dampening the overall market outlook. This new supply is likely to gradually increase the global surplus as demand remains subdued, especially in China. However, the mine probably won’t reach full capacity until 2029. In the meantime, downward pressure on iron ore prices should gradually intensify. We’re expecting a steady decline to around US$95 per tonne.

As we outlined recently External link., the rise in the price of gold is due to a combination of fundamentals, purchases by central banks, geopolitical uncertainty and speculation (graph 6). Over the years, new ways of holding gold, including exchange‑traded funds (ETFs) and, more recently, gold‑backed cryptocurrencies, have contributed to greater gold market financialization and facilitated speculation. As a result, gold prices are likely to be more volatile in 2026. In fact, ETF inflows jumped 45 tonnes in the last week of January, the biggest increase since October, when the US federal government was in the midst of a shutdown. The smaller silver market, combined with the same speculation that affected gold, caused the price of silver to surge. It hit a record high of US$118 per ounce on January 29 before falling by more than 30%. Like gold, the price of silver is expected to be volatile this year, but it will likely rise.

Platinum and palladium prices have increased recently, but gains have been modest. Industrial demand remains weak, which limits their upside potential. In both cases, supply is abundant and continues to grow, putting downward pressure on prices. Forecasters are expecting the price of both metals to come down in the coming months. That said, demand for financial assets considered to be secure, such as precious metals, could lead to brief spikes in prices during periods of acute economic and geopolitical uncertainty.

Softwood lumber demand continues to grow at a modest pace. Prices aren’t expected to spike, but the strong performance of the US economy will likely provide some support. Current prices are near their 2025 average and slightly above 2024 levels (graph 7). Weak demand and rising US trade barriers forced sawmills in Canada to adjust their supply, leading to several closures last year.

In the United States, housing starts remain weak and fell to their lowest level since 2020 in October. Builders and buyers of materials remain cautious (graph 8). However, on a more positive note, 30‑year mortgage rates have dropped slightly over the past six months, and mortgage applications increased in January 2026. Although these developments alone won’t generate a real estate market rebound, they should help achieve an annualized pace of about 1.3 million housing starts and support growth in residential renovations. In Canada, various government programs are expected to continue to support residential construction this year, and we’re projecting External link. that housing starts will hit an annualized pace of around 266,000. This should provide some support to sawmills, which suffered a more than 4% production decline in 2025 due to weaker US demand.

In the pulp and paper sector, prices remain stable (graph 7). Canadian producers had a difficult year in 2025. Sales volumes fell around 10% from 2024, and sawmill closures were announced, continuing the restructuring that has been underway for several years.

Global wheat, corn and soybean prices are expected to remain low in 2026 due to abundant harvests (graph 9). Wheat is under downward pressure, in part because major exporters—including Canada, which brought in a record crop in 2025—have increased production. Corn is on a similar path: the United States generated record output (+14% compared to 2024), consolidating its position as the world’s largest producer. However, changes in global prices may vary depending on weather conditions in Argentina and Brazil. A record soybean harvest is expected in Brazil, but unusually high temperatures and a lack of rain are causing strain in Argentina. In Quebec, harsh weather led to the lowest corn and soybean yields in over a decade, triggering a brief spike in local prices.

Finally, under the preliminary agreement External link. between Canada and China, effective March 1, Chinese tariffs should be slashed on several commodities, including canola seed (from 75.8% to 15%), and eliminated on peas, canola meal and certain seafood.