Sugar prices rise as Middle East oil shock threatens Brazilian supply

Friday 13 March 2026 - 14:53

By: Dakir Madiha

Sugar prices rise as Middle East oil shock threatens Brazilian supply

Raw sugar futures climbed this week, trading above 14 cents per pound and rising roughly 7 percent over the past month as the escalating war involving Iran pushes oil prices higher and raises concerns about sugar production in Brazil.

The rally follows a surge in crude prices after the conflict effectively closed the Strait of Hormuz, a key route for global energy shipments. The International Energy Agency said the war has created the largest oil supply disruption in the history of the global market, with worldwide supply expected to fall by about 8 million barrels per day in March. Brent crude has moved back above $100 per barrel after briefly touching $120 on March 9.

Higher oil prices directly affect sugar markets because Brazilian mills can shift sugarcane processing between sugar and ethanol depending on profitability. When oil prices rise, ethanol production becomes more attractive.

Aldo Cor, chief executive at Archer Consulting, told Reuters that rising fossil fuel prices typically improve ethanol margins, encouraging mills to allocate a larger share of sugarcane to biofuel production rather than sugar.

Brazilian producers had already signaled a possible shift toward ethanol even before the latest oil surge. Copersucar, one of the country’s largest sugar producers, said in February that mills were likely to prioritize ethanol early in the 2026/27 crushing season, which begins in April, because of stronger biofuel prices.

Hedgepoint Global Markets estimates that mills will dedicate about 48.6 percent of sugarcane to sugar production in the upcoming season, down from 50.7 percent in the 2025/26 cycle.

Fuel pricing decisions by Brazil’s state controlled oil company Petrobras could also influence the balance between sugar and ethanol production. The company controls roughly 77 percent of the country’s refining capacity.

Chief executive Magda Chambriard told Bloomberg that Petrobras would avoid raising domestic fuel prices for now, saying the company wants to confirm that the oil price spike is not temporary.

According to the Brazilian Association of Fuel Importers, domestic gasoline prices remain about 25 percent below international parity levels.

Political considerations may also shape Petrobras’s decision. President Luiz Inácio Lula da Silva is preparing for the general election scheduled for October 4 and has a strong incentive to keep fuel prices stable ahead of the vote.

Analysts say that if Petrobras eventually raises domestic fuel prices, the improved profitability of ethanol could prompt mills to reduce sugar output enough to tighten the global supply balance.

At the start of 2026, the sugar market appeared well supplied. Commodity trader Czarnikow projected a global surplus of 3.4 million metric tons for the 2026/27 season, while the International Sugar Organization expected a surplus of 1.22 million metric tons in 2025/26.

However, the oil shock has introduced uncertainty. If energy prices remain high and ethanol production expands, Brazil’s sugar output could fall enough to reduce or eliminate the expected surplus.