Commodities Wrap 24 July: Brent Retreats Below 97 Dollars as Diplomacy Hopes Cool the Oil Spike While Gold and Silver Firm

By The Edge Research Team

The risk premium came out of oil. Brent crude fell about 3.9 percent to below 97 dollars a barrel and West Texas Intermediate about 3.2 percent to 89.22, unwinding part of a two-day spike that had carried crude above 100, after a report that Pakistan, with China’s backing, was pushing to restart talks between the United States and Iran, per CNBC. As the geopolitical bid eased, the rest of the complex turned: the precious metals firmed, led by silver, and US Treasury yields slipped, a near mirror image of the inflation-and-rates session a day earlier, our reading. Even after the pullback, Brent held above its level before this week’s spike, so a security premium remains in the price, our calculation.

Energy fell hardest. Brent for September delivery dropped about 3.9 percent to 96.73 dollars and WTI about 3.2 percent to 89.22, both well off their highs earlier in the week, when Brent had topped 100 dollars, per CNBC. The refined products followed crude down, heating oil off 3.64 percent and gasoline 3.06 percent, and natural gas eased 1.68 percent to 2.867 dollars per million British thermal units. The trigger was diplomatic: a report that Pakistan, backed by China, was working to bring Washington and Tehran back to talks took some of the war premium out of the market, per CNBC, though analysts cautioned the situation was far from resolved, with traffic through the Strait of Hormuz not expected to normalize soon, per CNBC.

The metals moved the other way. Silver led, rising 1.14 percent to 58.72 dollars an ounce, and gold added 0.27 percent to about 4,061 dollars, recovering part of the previous session’s drop as yields eased and the haven bid steadied, our reading. Platinum and palladium lagged, off 0.45 percent and 0.78 percent, and copper was flat, up 0.02 percent to 6.34 dollars a pound. Silver’s outperformance pulled the gold to silver ratio down to about 69, from about 70 the day before, our calculation.

The agricultural markets were mixed. Coffee rose 1.55 percent and soybeans 0.70 percent, with cocoa and sugar also firmer, while the grains and cotton were softer, wheat off 2.48 percent and cotton 1.63 percent, and corn little changed. The complex traded on its own crop and harvest fundamentals, largely apart from the energy move, our reading.

Across the wider board, the pullback in oil took pressure off rates. The 10-year Treasury yield slipped about two basis points to 4.68 percent and the two-year about three to 4.33 percent, reversing part of the prior day’s climb, per CNBC, while the dollar was little changed, the euro off 0.06 percent and sterling up 0.09 percent. Market volatility edged lower, the VIX easing to 18.65, and Bitcoin fell 1.06 percent to about 64,100 dollars. Egyptian and Kuwaiti markets were closed for the local weekend, with the Kuwaiti dinar at its latest official reference near 0.3078 against the dollar.

Why it matters: For the Gulf the pullback is a mixed signal. Softer crude trims the export-revenue windfall that the spike had promised the producing economies, but the reason for the retreat, a reported diplomatic push to reopen talks between the United States and Iran, points most directly to lower security risk around the Strait of Hormuz, while the separate threat to Red Sea and Bab el-Mandeb shipping tied to the Houthis would not be resolved by those talks alone, our reading. For Egypt and Jordan as energy importers, a lower oil price relieves some pressure on the import bill. The steadier metals, meanwhile, restore part of the valuation on the gold reserves that regional central banks hold, our reading.

Outlook: The situation remains fluid, and the premium that came out of prices on Friday could rebuild quickly if the diplomatic track stalls or the shipping disruption widens. The near-term drivers are whether the reported push for talks gains traction, whether traffic through the Strait of Hormuz and the Bab el-Mandeb recovers, and whether Brent settles back toward its pre-spike level or holds a war premium near the high nineties. For the metals, the path of Treasury yields will set the tone, and for natural gas the weekly US storage data and domestic weather remain the markers.

Table – Energy, 24 July, ranked by change:

Table – Metals, 24 July, ranked by change:

Table – Agriculture, 24 July, ranked by change:

Table – Rates, currencies, volatility and crypto, intraday 24 July, ranked by percent change:

Price basis: all figures are CNBC quotes captured in the New York afternoon on 24 July, around the day’s futures settlement windows for the energy, metal and agricultural contracts and intraday for the US Treasury yields, currencies, the VIX and Bitcoin; energy and metal levels are front-month futures; agricultural prices are quoted in US cents per bushel for wheat, corn and soybeans, US cents per pound for coffee, sugar and cotton, and US dollars per metric ton for cocoa; the euro and sterling are dollars per unit and the yen is units per dollar; Egyptian and Kuwaiti onshore markets were closed for the local weekend, so the Egyptian pound is omitted and the Kuwaiti dinar is carried in the text at its latest official reference near 0.3078.

Sources: CNBC.

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