Commodity Roundup: Middle East developments support oil, gold prices

Oil prices advanced on Monday amid escalating fears of a broader conflict in the Middle East which could disrupt regional oil supplies, while gold also ticked higher on imminent U.S. interest rate cut hopes and safe-haven demand.

Oil prices will be on watch as Israel and Lebanese paramilitary group Hezbollah engaged in the heaviest missile exchange on Sunday following 10 months of warfare, fueling fears of a wider conflict in the Middle East.

Front-month Nymex crude (CL1:COM) for October delivery rose +1.11% to $75.66 a barrel, and October Brent crude (CO1:COM) was up +1.15% to $79.93.

“The strength in the market on Friday has carried through to early morning trading today. A preemptive Israeli strike on Hezbollah over the weekend has raised concern about the Middle East once again. We would expect any rally on the back of these developments to be rather short-lived except if Iran were to become more directly involved, as this would raise oil supply risks more meaningfully,” ING analysts said in a note.

Product markets, however, remain bearish, and while the upcoming refinery maintenance season might provide some support, well-supplied markets are likely to keep sentiment negative, the brokerage added.

The rig count in the five major tight oil basins meanwhile rose by a net three rigs as Permian and Anadarko basins gained three rigs each while the Bakken lost two and the Eagle Ford lost one. “The addition of three rigs in each the Permian and the Anadarko basins tie for the largest inter-basin weekly gain observed so far this year,” JPM Commodities Research said, adding, it does not anticipate a significant recovery in drilling activity over the remainder of the year.

JPM’s North America Commodities Research projects another seven rig additions between now and the end of the year.

Elsewhere, gold prices rose above $2,520 per ounce on Monday, reaching the record levels it touched last week after Federal Reserve Chair Jerome Powell’s Jackson Hole speech strengthened expectations of an interest rate cut in September.

Markets are now split between anticipating a 25 basis points or 50 basis point cut at the Fed’s September meeting. Lower rates reduce the opportunity cost of holding non-interest-bearing assets, increasing the appeal of gold.

Additionally, bullion’s safe-haven appeal was also boosted by the developments in the Middle East.

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