Oil prices surged on Thursday, reversing early losses as doubts increased over the viability of talks between the US and Iran to end the war in the Middle East.
Brent and West Texas Intermediate crude oil benchmarks climbed 3.5% and 2.5% respectively on Thursday.
Meanwhile, gold prices were steady as the market continued to assess the situation in the Middle East and its impact on inflation.
Copper and aluminium contracts on the London Metal Exchange also rose as supply concerns boosted sentiments in the market. Aluminium prices continued to trade near a more than four-year high.
Oil surges
Oil prices reversed early losses on Thursday as the market expressed doubt that ongoing US-Iran peace negotiations would successfully broker a deal to end the conflict that has interrupted Middle Eastern energy supplies.
“The forward curves for Brent, and to a lesser extent WTI, continue to show backwardation, in other words, short-term supply issues which ease up over the rest of the year,” said David Morrison, senior market analyst at Trade Nation.
But this backwardation is not as steep, or indeed as regular as it was a week ago. That suggests some nuances are coming back into pricing, which also suggests that the overall situation may be considered clearer than it was recently.
The conflict between the US and Israel with Iran has resulted in an unprecedented disturbance of the global oil and gas markets.
This disruption is primarily due to the blockage of the Strait of Hormuz, a crucial transit point for approximately 20% of the world’s oil and liquefied natural gas (LNG) shipments.
“After taking into consideration pipeline diversions and the trickle of tankers through the Strait of Hormuz, we estimate that roughly 13m b/d has been disrupted. But with the US blockade, this number could creep higher,” Warren Patterson, head of commodities strategy at ING Group said in a note.
Officials from the US and Iran are reportedly contemplating a return to Pakistan for more discussions, possibly as soon as the upcoming weekend. This follows the arrival of Pakistan’s army chief in Tehran on Wednesday to act as a mediator.
Iran is open to the possibility of permitting the free passage of ships through the Omani side of the Strait of Hormuz, according to reports. This consideration is contingent on a deal being reached to avert a recurrence of conflict, building on the two-week ceasefire that commenced on April 8.
More than six weeks into its conflict with the Iran-backed Hezbollah, Israel’s cabinet convened on Wednesday to discuss the situation in neighboring Lebanon. This move, according to a senior Israeli official, suggests a potential de-escalation of military operations.
At the time of writing, Brent crude was at $98.06 per barrel, up 3.3%, while WTI was at $93.21 per barrel, up 2.2%.
Gold flat
In precious metals, gold remains supported amid renewed optimism around de‑escalation.
The pullback in energy prices on Thursday morning had led to higher gold prices. But, gold gave up those gains once oil surged later in the day.
The move reflects a broader shift in market focus. “While gold initially fell sharply as liquidity pressures forced selling, losses have since partially recovered as growth concerns have re‑emerged and price swings have become less extreme,” Ewa Manthey, commodities strategist at ING Group, said in a note.
While higher real rates, a firmer dollar, and profit-taking could weigh on near-term price action, recent pullbacks suggest underlying demand remains resilient.
The onset of the US-Israel war on Iran in late February initially caused gold prices to drop. This decline was driven by liquidity pressures and rising inflation, as energy prices soared, leading markets to reduce expectations for interest rate cuts.
Consequently, gold, which yields no interest, became less attractive in an environment of anticipated higher interest rates.
Market participants currently assign a 36% probability to the US implementing an interest rate cut before the end of the year.
Gold on COMEX was last at $4,826.71 per ounce, largely unchanged from the previous close, while silver was at $78.960 an ounce, down 0.8%.
Copper and aluminium
Copper prices had climbed to a one-month high earlier on Thursday, before giving up all the gains to trade flat.
Hopes that the US and Iran might resume negotiations helped to ease the recent strain on the market, which had been driven by concerns over rising energy expenses and slower economic expansion.
“However, the market remains highly headline‑driven,” Manthey said.
Any escalation in the conflict, renewed spikes in energy prices or signs of softer demand could quickly reverse sentiment.
Should the situation de-escalate, copper is expected to see strong performance, she noted. This outperformance would be driven by the anticipation of future rate cuts, a less robust dollar, and an overall rise in risk appetite.
Meanwhile, aluminium prices on the LME rose on persistent supply worries from the Strait of Hormuz.
The three-month aluminium contract was at $3,644.50 per ton, up 0.7%. The contract is currently trading at a more than four-year high. The copper contract was flat at $13,283.50 per ton.