Commodities Wrap 8 July: Oil Extends Its Climb on Strait of Hormuz Supply Fears as Precious Metals Sell Off Sharply
Commodities split sharply on Wednesday, with crude oil extending its climb while the entire precious-metals complex sold off, as a firmer dollar and expectations that US interest rates will stay higher for longer pressured metals even as oil held on to a geopolitical risk premium. The levels below reflect CNBC’s active futures settlement values for the day, with metals settling in the early New York afternoon and energy contracts settling later in the session.
Energy led again. Brent crude for September delivery jumped 5.26 percent to settle at US$78.06 a barrel and West Texas Intermediate for August rose 4.46 percent to US$73.58, extending the previous session’s gains as concern over the security of shipping through the Strait of Hormuz persisted and kept a supply-risk premium in the price. The strait carries around a fifth of the world’s oil, and that premium has more than offset an otherwise bearish supply backdrop following the 5 July OPEC+ decision to raise August output by 188,000 barrels a day. The rally widened the Brent to WTI spread to about US$4.48 a barrel, our calculation, from roughly US$3.72 the day before, a sign the geopolitical premium showed up more in the internationally traded Brent benchmark than in US domestic crude. Natural gas bucked the energy strength, easing 1.65 percent to US$3.211 per million British thermal units.
Precious metals fell across the board. Palladium was the weakest of the complex, dropping 4.47 percent to settle at US$1,224.00 an ounce, while silver fell 4.36 percent to US$58.66 and platinum lost 4.29 percent to US$1,591.70, giving back recent gains. Gold held up better in relative terms but still eased 1.88 percent to US$4,079.20 an ounce. Silver’s decline was far sharper than gold’s, lifting the gold to silver ratio to about 69.5, our calculation, up from around 67.8 the day before. The selloff reflected a firmer US dollar and higher Treasury yields amid expectations that the Federal Reserve will keep policy restrictive, a backdrop that weighs on non-yielding metals.
In base metals, copper eased 1.65 percent to US$6.123 a pound, joining the retreat across the industrial and precious complex. The divergence points to the day’s dividing line running between oil, lifted by a supply-security premium, and the rest of the complex, pressured by the firmer dollar and a more cautious risk backdrop.
Why it matters: The day’s defining split was between oil and everything else. For MENA, firmer crude supports the export revenues of Gulf producers such as Saudi Arabia, Kuwait, the UAE and Qatar, easing near-term budget pressure, but the reason for the strength is the more serious point: a persistent risk premium tied to the security of shipping through the Strait of Hormuz, the single most important chokepoint for Gulf oil and gas exports, which raises insurance and freight costs and keeps a security premium in the price that the region had only recently seen fade. For the region’s energy importers, such as Egypt and Jordan, the same rally works the other way, adding to import bills and complicating inflation and subsidy management if it is sustained. The sharp pullback in precious metals, meanwhile, trims the valuation gains regional central banks have booked on their gold holdings, though the scale of official reserves means the effect is marginal.
Outlook: The near-term driver for oil remains geopolitical, and whether concern around the Strait of Hormuz escalates or eases will matter more in the immediate term than the OPEC+ supply path, though the group’s next meeting on 2 August is a key date. For precious metals, the direction of the US dollar and real yields is the swing factor, and Wednesday’s steep declines raise the question of whether the selloff deepens or stabilises, while copper will keep taking its cue from Chinese industrial demand and the softer global growth outlook the IMF set out this week.
Commodities, ranked highest to lowest
| Commodity | Settlement | Change |
|---|---|---|
| Brent Crude | US$78.06 | +5.26% |
| WTI Crude | US$73.58 | +4.46% |
| Natural Gas | US$3.211 | -1.65% |
| Copper | US$6.123 | -1.65% |
| Gold | US$4,079.20 | -1.88% |
| Platinum | US$1,591.70 | -4.29% |
| Silver | US$58.66 | -4.36% |
| Palladium | US$1,224.00 | -4.47% |
Sources: CNBC; Bloomberg; CME Group.
