Oil prices climbed significantly on Monday, while gold prices fell, as attacks on key Middle Eastern energy infrastructure and vessels signaled a notable escalation in US-Iran hostilities, endangering a four-week ceasefire. The London Metal Exchange was closed for a holiday.
Crude Oil: Prices Soar Following Iranian Attack on Energy Facilities in Fujairah, UAE Oil prices advanced sharply on Monday after assaults on critical energy assets and tankers in the Middle East marked a serious intensification of US-Iran conflict, threatening a ceasefire that had held for about a month.
Brent crude futures surged 5.8%, settling above $114 per barrel, after an Iranian drone strike caused a fire in a key petroleum industrial zone in Fujairah. The UAE also issued multiple missile alerts to residents, stating that its defense systems were actively countering threats.
June WTI rose 4.4%, settling at $106.42 per barrel. July Brent increased 5.8%, closing at $114.44 per barrel.
Oil prices had also risen earlier in the session after tankers linked to several nations reported being attacked in the Strait of Hormuz.
These attacks represent the most significant uptick in tensions since the US and Iran reached a fragile ceasefire in early April. Each day of blockage in the critical Strait of Hormuz deprives global markets of millions of barrels of oil supply, heightening concerns about demand destruction and a global economic downturn.
"The market is beginning to face the reality that this will not be a clean, linear path to restarting, but a bumpier and more uncertain process," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. She added that market expectations for the resumption of oil transit through the Strait of Hormuz have shifted from June to early July. "In the meantime, the biggest risk is energy infrastructure again becoming a military target, especially in the UAE."
Precious Metals: Gold Declines as Middle East Tensions Elevate Inflation Risks Gold prices dropped as escalating Middle East tensions threatened the US-Iran truce, driving up energy prices and amplifying inflation risks.
Gold fell by as much as 2.4% after the UAE indicated its air defense systems were responding to missile threats from Iran, while Tehran warned it would further strengthen control over the Strait of Hormuz.
As attacks continued and maritime traffic nearly stalled, a new plan proposed by Trump to assist vessels passing through the Strait of Hormuz puzzled shipping executives.
Bart Melek, Global Head of Commodity Strategy at TD Securities, stated that soaring energy prices and shortages of key inputs like fertilizers could increase inflation risks, thereby raising the likelihood of Federal Reserve interest rate hikes.
"We may start to see these factors feeding into food prices and keeping fuel costs elevated, suggesting these shocks could further transmit into core inflation," Melek said in an interview. "If oil price issues persist, the Fed’s next move will likely be a rate hike."
Melek indicated that such a scenario would bolster the US dollar, keep interest rates high, and put downward pressure on gold prices.
Spot gold declined 2%, to $4,521.91 per ounce. Spot silver fell 3.4%, to $72.766 per ounce.
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