Commodities Wrap 29 July: Oil Surges 8 Percent as US-Iran Strikes Resume

By The Edge Research Team

Oil ripped higher and dragged the security premium back into the commodities complex on Wednesday. Brent crude settled 8.07 percent higher at 90.88 dollars a barrel and West Texas Intermediate rose 6.98 percent to 84.79 dollars, per CNBC, after a pause in US-Iran hostilities broke down, with Iran’s Revolutionary Guard firing ballistic missiles at US forces in the region and US and Saudi forces striking Iran-backed sites in eastern Iraq. The reversal put crude back above 90 dollars and set the tone for a session where energy surged, precious metals were mixed and agriculture fell, our reading.

Energy led across the board. Heating oil rose 5.64 percent to 4.3849 dollars a gallon, natural gas added 2.40 percent to 2.726 dollars per million British thermal units and gasoline gained 1.77 percent to 3.3936 dollars, per CNBC. The move tracked the renewed threat to regional supply routes, with maritime advisories flagging an explosion near a tanker in the southern Red Sea and concern over attacks on Saudi oil facilities, per CNBC.

Precious metals were mixed. Silver rose 1.76 percent to 58.54 dollars an ounce and gold added 0.67 percent to 4,065.80 dollars, while platinum eased 0.18 percent to 1,620.40 dollars and palladium 0.29 percent to 1,269.50 dollars, per CNBC. Copper firmed 0.32 percent to 6.38 dollars a pound as the risk tone in energy carried into some industrial metals, our reading.

Agricultural markets fell broadly, with coffee the standout decliner. Arabica coffee dropped 3.77 percent to 326.60 cents a pound, the session’s largest single commodity loss, while soybeans fell 2.34 percent, corn 1.98 percent and cotton 1.07 percent, per CNBC. Cocoa eased 0.62 percent, wheat 0.38 percent and sugar 0.34 percent.

Across the wider board, the Federal Reserve held its benchmark rate steady in a range of 3.5 to 3.75 percent in a 9-3 vote, with three policymakers dissenting in favor of a quarter-point increase to address above-target inflation, per CNBC. The oil shock and the hawkish dissents lifted volatility and yields: the volatility index rose 3.73 percent to 18.89 and the 10-year US Treasury yield gained about 4 basis points to 4.645 percent, while the US dollar index eased 0.22 percent to 101.194, per CNBC. Bitcoin rose 0.25 percent to about 63,868 dollars.

Why it matters: For Gulf energy exporters, the renewed security premium lifts the near-term revenue outlook for producers such as Saudi Arabia, Kuwait, the UAE and Qatar, even as the same disruption raises freight and insurance costs and leaves the region closest to the risk, our reading; a single session does not alter fiscal outlooks. For energy importers such as Egypt and Jordan, a sharply higher oil bill is the immediate cost, and the Egyptian pound’s hold below the 51 line is the buffer to watch.

Outlook: The situation remains fluid, and the premium could unwind as fast as it returned if the US-Iran exchange fades, our reading. With the Federal Reserve’s hold and its hawkish dissents now on the table, markets turn to whether the escalation spreads to further energy or shipping infrastructure, per CNBC.

Table – Energy, 29 July, ranked by change:

Table – Metals, 29 July, ranked by change:

Table – Agriculture, 29 July, ranked by change:

Table – Rates, currencies, volatility and crypto, intraday 29 July, ranked by percent change:

Sources: CNBC.

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