Commodities Wrap 28 July: Brent Settles 5.1 Percent Lower as US-Iran Pause Holds While Coffee Jumps

By The Edge Research Team

The geopolitical risk premium kept draining out of oil on Tuesday. Brent crude settled 5.06 percent lower at 83.89 dollars a barrel and West Texas Intermediate fell 4.41 percent to 78.97 dollars, extending a multi-session retreat as a pause in US-Iran hostilities held and Iran discussed Strait of Hormuz security with Saudi Arabia and Oman, per CNBC. As the geopolitical bid eased, the rest of the complex softened, with precious metals lower and agriculture mixed, our reading.

Energy led the declines. Natural gas fell 3.47 percent to 2.671 dollars per million British thermal units, while WTI settled at 78.97 dollars and Brent at 83.89 dollars, per CNBC. Refined products bucked the trend, with heating oil up about 1 percent and gasoline little changed. Goldman Sachs said, per CNBC, that Brent could moderate toward 80 dollars a barrel by year-end if the Strait of Hormuz fully reopens, though CNBC noted that risks to global energy supplies remained elevated.

Precious metals eased with the softer risk tone. Gold settled 1.19 percent lower at 4,028.60 dollars an ounce and silver fell 2.23 percent to 57.41 dollars, while palladium dropped 2.26 percent and platinum declined 1.07 percent, per CNBC. Copper eased 0.71 percent. The complex stayed sensitive to the rate outlook ahead of Wednesday’s Federal Reserve decision, our reading.

Agricultural markets were mixed, with coffee the standout. Arabica coffee rose 4.91 percent, the session’s largest single commodity gain, while cocoa added 2.08 percent, corn 1.48 percent and wheat 0.72 percent, per CNBC. Soybeans firmed 0.49 percent, while sugar and cotton edged lower.

Across the wider board, the pullback in oil took some pressure off rates. The US dollar index eased 0.12 percent, the 10-year US Treasury yield fell about 4 basis points to 4.604 percent and the volatility index slipped to 18.22 ahead of the Federal Reserve’s policy decision on Wednesday, per CNBC. Bitcoin traded 1.96 percent lower near 63,639 dollars.

Why it matters: For Gulf energy exporters, softer crude eases the security premium that had lifted freight and insurance costs, but it also trims near-term hydrocarbon receipts, our reading; a single session does not materially alter fiscal outlooks. The diplomatic engagement by Saudi Arabia and Oman around the Strait of Hormuz underscored the Gulf’s role in de-escalation and maritime security. For energy importers such as Egypt and Jordan, a softer oil bill is a modest relief on the external account.

Outlook: The situation remains fluid, and the premium that came out of oil could return quickly if the pause breaks down, our reading. Markets now turn to the Federal Reserve’s decision on Wednesday and to whether talks on Strait of Hormuz navigation hold, per CNBC.

Table – Energy, 28 July, ranked by change:

Table – Metals, 28 July, ranked by change:

Table – Agriculture, 28 July, ranked by change:

Table – Rates, currencies, volatility and crypto, intraday 28 July, ranked by percent change:

Sources: CNBC.

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