Oil prices saw a modest increase in volatile trading on Monday, influenced by escalating tensions in the Middle East, while investors also monitored efforts by mediators to secure a temporary ceasefire. Gold prices stabilized as traders assessed the potential for Federal Reserve interest rate hikes to combat inflation against the backdrop of Iran-related tensions. Copper prices advanced in London.
Oil: Middle East Tensions Drive Modest Price Gains
Crude oil prices edged higher in choppy trading on Monday as traders digested a series of signals indicating a worsening conflict in the Middle East while also evaluating initiatives aimed at achieving a temporary pause in hostilities.
WTI crude futures fluctuated within a $5 range, ultimately settling marginally higher near $83 per barrel. Despite the modest move, this marked the highest closing price since mid-June. Brent crude briefly surpassed $90 per barrel before paring some of its gains.
The Iran-aligned Houthi group in Yemen announced a maritime blockade against Saudi Arabia, potentially threatening the Red Sea route, an alternative export channel for Saudi crude. This followed attacks on several tankers and Kuwaiti oil facilities by Iran in recent days, which once again made energy assets explicit targets.
"Crude markets are largely pricing in that open diplomatic communication channels will remove the tail risk of a significant price spike," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. "If there is an attack on a vessel in the Red Sea, the next leg higher in oil could happen quickly."
A report citing an unnamed senior Iranian official stated that mediators have proposed a 10-day ceasefire to explore ways of reviving a nearly collapsed interim agreement. Iran also indicated that mediators are in contact with Tehran regarding proposals to de-escalate hostilities. Concurrently, U.S. President Donald Trump vowed that Iran would "pay a price" for the deaths of three American soldiers in recent days.
In refined products, gasoline and diesel prices once again rose above $4 and $5 per gallon, respectively. Heating oil futures climbed as much as 3.4% on Monday, influenced by disruptions in the Strait of Hormuz and the impact of Russia's July diesel export ban.
August WTI crude in New York gained 0.9%, settling at $83.23 per barrel.
September Brent crude rose 1.3%, settling near $89.22 per barrel.
Metals: Gold Prices Stabilize
Gold prices held steady on Monday following reports of mediation efforts after U.S.-Iranian clashes escalated over the weekend, while traders also evaluated the likelihood of the Federal Reserve raising interest rates to curb inflation.
The precious metal traded around $4,000 per ounce, having fallen 2.5% last week. Iran's foreign ministry stated it had received proposals from mediators regarding the U.S.-Iran war but did not disclose specifics.
The Iran conflict, now in its fifth month, has once again pushed up prices for commodities used in manufacturing and food production. Traders must balance the effects of rising energy prices, potential Fed rate hikes, and weak U.S. economic data, with higher interest rates being a headwind for non-yielding gold.
"Gold's relatively muted reaction to the spike in oil prices, in my view, reflects some investor numbness to the geopolitical situation," said Justin Lin, an analyst at Global X ETFs, adding that focus is shifting more towards the Fed's interest rate decisions. He noted that yields only rose slightly over the weekend despite the significant escalation in the Middle East, which may explain gold's relative stability.
Swap traders see a low probability of a Fed rate hike at its next meeting in July, although the market has fully priced in at least one rate increase before year-end.
As of 3:55 PM ET:
Spot gold was down 0.2% at $4,007.49 per ounce.
Spot silver was up 0.9% at $56.4055 per ounce.
Base Metals: Copper Advances in London
At the London close:
LME copper rose 0.7% to $13,622 per metric ton.
LME aluminum fell 0.3% to $3,140 per metric ton.
LME zinc fell 0.2% to $3,520 per metric ton.
LME nickel fell 0.2% to $16,929 per metric ton.
LME tin fell 0.7% to $52,878 per metric ton.
LME lead fell 0.2% to $1,879 per metric ton.
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