Barclays Maps El Niño’s Impact: Gas Prices Drop First, Tropical Softs Surge

How Barclays Sees El Niño Reshaping Commodity Markets

Barclays has laid out a three-speed framework for tracking how a potential super El Niño ripples through raw materials. Energy – particularly European natural gas – tends to react first and fall, while tropical agricultural commodities such as palm oil, coconut oil and rubber historically deliver the largest upside, sometimes months after the weather event has peaked. Industrial metals, by contrast, are a late-cycle story that typically plays out a year or more later.

The logic is straightforward on the gas side: a strong El Niño brings warmer-than-normal winters to the northern hemisphere, crushing heating demand and leaving storage levels elevated. The bank’s historical analysis shows that in past events European gas prices traded 9% to 28% below trend, with deeper discounting during the most intense episodes. For the United States, a similar warm-winter effect could erase 4 to 5 billion cubic feet per day of gas demand, compounding downward pressure from associated gas flowing out of the Permian Basin.

Crude oil, the Barclays team notes, behaves differently – it is effectively “La Niña-sensitive” rather than an El Niño trade. Prices have historically undershot trend by 5% to 30% during El Niño, while rising 17% to 40% above trend once the world switches to a La Niña pattern. The analysis therefore sees oil’s tendency to rally late in an El Niño cycle as a function of what comes next, not a lagged response to the warming itself.

The biggest price elasticity, however, lies in tropical soft commodities. The research identifies palm oil, coconut oil and rubber as the most sensitive products, with production heavily concentrated in Southeast Asia – the very region that endures the strongest heat and drought stress during El Niño. Historical data for strong events shows real price gains of about 26% after 12 months and nearly 40% after 18 months, with extreme events driving even larger spikes.

Behind the Forecast: Gas and Tropicals Diverge Under Super El Niño

European Gas: Demand Destruction Meets Storage Glut

The transmission channel for European gas is unusually clean. A mild winter curtails heating demand, lifting end-winter storage far above normal. The glut then feeds into a weaker summer refill season for LNG, creating a persistent drag on spot and forward prices. Barclays calculates that, should the 2026/27 winter prove warm, the resulting stock overhang could exert sustained downward pressure on continental gas benchmarks. This pattern held consistently across the historical events the bank examined.

US Gas: Supply Growth Amplifies the Warm-Weather Hit

American gas faces a double punch. The 2015-16 super El Niño – with an index reading of 2.8 – shrank heating degree days by 16% versus the prior seven-year average. Current climate models suggest this cycle could hit an index of +3 to +4, putting 15–20% of winter heating demand at risk, or roughly 4–5 Bcf/d of lost consumption. At the same time, price-insensitive associated gas from the Permian continues to swell supply, leaving Henry Hub exposed even before weather effects are fully priced in.

Crude Oil: Why the Real Driver Is La Niña, Not El Niño

Barclays’ historical lens flips the conventional narrative. Oil prices, the data show, do not respond to El Niño with a reliable directional signal. The apparent late-cycle lift in crude is better explained by the anticipation and arrival of the La Niña phase that frequently follows. During La Niña events, prices have consistently run above trend, supporting the idea that any bullish oil bet tied to El Niño is essentially a proxy for the coming flip in the Pacific pattern.

The Tropical Trio: Palm Oil, Coconut Oil and Rubber

The statistical record for these three products is the strongest in the whole commodity universe. In extreme El Niño scenarios, palm oil has rallied roughly 34% in real terms within a year; coconut oil surged 50–60% over 18 months; rubber posted gains of 15–20%. Southeast Asia’s output is acutely vulnerable: USDA estimates the 2024 El Niño cut Philippine coconut oil production by nearly 12%, while Thai and Indonesian rubber output fell 10% and 15% respectively. Critically, palm oil prices have often traded below trend during the event window – meaning the early months, when headlines scream heat and drought, may actually represent a buying opportunity before the supply-driven rally takes hold.

Investor Signals from the Barclays Playbook

• Natural gas bears may find tailwinds early. Historical European price discounts of 9–28% and US demand losses of 4–5 Bcf/d suggest that positioning for a milder winter before official forecasts lock in could capture the initial demand impact. The key data points to watch are weekly heating degree day figures and European storage refill rates as autumn turns to winter.
• Tropical commodity exposure timing matters. The Barclays work flags that palm oil frequently dips late in the El Niño year, creating what the bank implies is a window of opportunity. Coconut oil and rubber have shown reliable backward-looking returns, but event-to-event variance in rubber is high, so position sizing and horizon discipline are essential.
• Oil traders should look past El Niño. With the bank framing crude as a La Niña play, the signal to monitor is not the current Pacific warming but the probability and timing of a transition back to La Niña conditions. That shift has historically underpinned the 17–40% above-trend oil moves.
• Supply-chain risks for commodity consumers. Companies sourcing coconut oil, palm oil or natural rubber should stress-test supply agreements against the historical 12–18 month production lag. The first sign of a strong event may be an opportunity to lock in prices before the full supply squeeze materialises.