Commodities Insight

Oil prices as well as gold benefited from a spike in risk aversion prompted by the escalating conflict in the Middle East. Gas prices also spiked as investors weigh the risk of widening geopolitical tensions.

Oil prices have found a footing, after dropping more than 2% yesterday. Saudi Arabia and Russia showed they were working together to support the oil market, with officials from both countries appearing on Russian TV to say that they are committed to keeping markets stable by taking action in advance. Markets continue to keep an eye on developments in the Middle.

USOIL had fallen nearly -9% last week — the sharpest weekly decline in the past 7 months — as investors weighed signs of weakening demand. Data released by the U.S. Energy Information Administration (EIA) on Wednesday, showed that US gasoline stocks rose approximately 6.5 million barrels, reaching 227 million barrels. A spike in global yields also weighed on growth prospects.

Meanwhile, Turkish Energy Minister Alparslan Bayraktar said last Monday that the oil pipeline that transports Iraq crude from Kirkuk to export facilities in Ceyhan on the Turkish Mediterranean coast was ready to be re-opened. Bayarktar said the pipeline, which was closed in March, could supply up to 500K barrels to global markets. However, Iraq has reportedly not received formal notification from Turkey on whether flows can be restarted. “A senior energy adviser told Reuters Iraq was also waiting for talks on lingering financial and technical issues”.

On top of this Russia suggested on Friday that it had largely lifted an embargo on diesel shipments by pipeline via seaports, which had been in force since September 21. The restrictions for gasoline exports appear to remain in force, but the news added to pressure on oil prices last week and counterbalanced ongoing supply restrictions.

Following the Joint Ministerial Monitoring Committee last Wednesday, OPEC+ confirmed its existing output cut targets, which underpinned expectations of supply shortages through the last quarter of the year. Russia and Saudi Arabia had already confirmed ahead of the meeting that they would extend their voluntary supply restrictions until the end of the year. They indicated that the situation will be reviewed in November.

Gas bounced and is up 18% in the US compared to last Monday, while in Europe futures extended monthly gains to 20% and 18.6% for TTF and UK respectively. The latest spike came after Chevron Corp. was told by Israel to shut natural gas production at the Tamar platform following the attacks by Hamas on Israel over the weekend. European prices were further boosted by reports showing that the Baltic region was rocked by another major subsea gas pipeline incident. The Baltic connector subsea gas pipeline between Finland and Estonia was forced to halt operations after an unusual pressure drop. A leak could take several months to repair.

The gold price has benefited from safe haven demand, and it briefly traded above $1,850 per ounce today amid concern of escalating tensions in the Middle East. Investors weighed speculation that Iran may be involved in the attacks, which could lead to a further widening of the conflict and greater geopolitical tensions. Gold had already risen on Friday amid a pullback in the US Dollar, but it still posted a -0.8% weekly loss. The precious metal is currently trading at $1,880 per barrel.

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Andria Pichidi

Market Analyst

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