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Commodity market trends amid escalating Gaza conflict and oil price fluctuations

The stepped-up fighting in Gaza is likely to trigger more anxiety in commodity markets this week, especially after Israel’s broader attack began today.

Thanks to this conflict, gold emerged as the star performer in commodities last week, despite tightening US bond yields and occasional strength in the US dollar.

Comex gold for December delivery settled up $1.10 to $1,998.50 per ounce, marking the highest level since July 31. After settlement, it surged more than $17 to close the week at $2,016.30 per ounce, driven by news of US air raids on Iran-backed facilities in Syria. The Australian dollar price also reached an all-time high of $3,167.60 an ounce, according to World Gold Council data.

Gold has gained more than 9% as investors sought refuge from the potential fallout of the Israel-Hamas war that escalated on October 7. On Friday, prices convincingly breached the $2,000-an-ounce mark, and even the prospects of higher US interest rates couldn’t keep prices below this level.

The intensified fighting over the weekend is expected to push gold prices even higher, as well as the shares of ASX-listed miners, despite a sharp fall in futures on Friday night.

The Federal Reserve meeting would typically influence gold through its impact on the value of the US dollar and US bond yields. However, safe-haven buying is currently driving gold prices, and the ongoing conflict suggests there is more room for price increases.

Oil experienced some fluctuations last week. While it firmed on Friday, it fell over the course of the week. Both US West Texas Intermediate crude and Brent saw decreases compared to the previous Friday’s close, and their prices are now lower than they were a year ago.

WTI crude for December delivery closed up $2.22 to settle at $85.54 per barrel but eased to close the week at $85.16. Meanwhile, December Brent crude, the global benchmark, was up around $2 to $89.20 but slipped back to $89.17 in late trading.

For the week, Brent lost more than 3%, and WTI shed more than 4%. Brent is currently 5.3% lower than it was a year ago, and WTI is down 3.6%.

The number of oil rigs operating in the US increased by two last week, according to data from energy-services firm Baker Hughes. This marks the second small weekly gain in a row. The count for oil rigs rose to 504 from 502 on a weekly basis, while the tally for gas rigs fell by one to 117. Miscellaneous rigs remained unchanged at four. A year earlier, the US had 610 oil rigs, 156 gas rigs, and two miscellaneous rigs in operation.

Regarding crude oil, it remains range-bound due to the ongoing Israel-Hamas conflict, which has caused fluctuations in the geopolitical risk premium. A weakening demand outlook has also contributed to stabilising oil prices.

Furthermore, oil prices found support after Exxon Mobil’s CEO mentioned that the company anticipates tight global oil supplies for the next few years due to limited investment in fossil fuels. Investment in fossil fuels has lagged due to concerns that oil demand may peak as electric vehicle sales increase and clean energy becomes more competitive.

In other commodities news, Comex copper had its best week in months, rising by around 2.5% over the week to close at $3.64. Reports on Chinese stimulus spending contributed to this increase ahead of the usual monthly activity measures in the economy.

SGX iron ore futures (for 62% Fe iron ore fines) ended the week at $119.75 on Friday, marking a more than 6% increase from the previous Friday’s close of $112.57. SGX premium Australian coal futures also rose to around $336 a tonne on Friday, up from $319 a tonne the previous Friday.

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