The Commodities Feed: Oil supported by geopolitical risks despite supply gains
The desk is focusing on how geopolitical tensions are sustaining oil prices despite recent supply improvements in the Persian Gulf. As noted in the research from ING, oil remains supported around the $100 per barrel mark, with ongoing uncertainties regarding U.S.-Iran negotiations contributing to market nervousness. This is accentuated by continual threats to regional infrastructure, such as the attack on Saudi Arabia's East-West pipeline. Overall, these geopolitical factors suggest a persistent pricing floor for oil that could shape trading strategies in the FX market, particularly for currencies sensitive to commodity price fluctuations, such as the CAD and AUD.
What the desk is arguing
The desk posits that oil prices are likely to stay elevated due to persistent geopolitical risks overshadowing improvements in supply capacities. Per the full note from ING, the market's current support level around $100/bbl is indicative of how fears related to U.S.-Iran relations are keeping traders on edge.
Despite a reported recovery in oil flows, with Kuwait operating at 75% of pre-war levels and Saudi Arabia cutting the official selling price of Arab Light crude, the potential for supply disruptions remains a significant concern. The research highlights that even though production is improving, risks such as the recent attack on the East-West pipeline are reminders of the volatility in the region.
Where it sits in our coverage
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How other firms see it
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What the calendar says
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Key takeaways
- 01Brent crude supports around $100/bbl, reinforced by geopolitical risks.
- 02Improvements in supply from the Persian Gulf are overshadowed by regional tensions.
- 03The situation highlights an ongoing nervousness in oil markets that could impact related currencies.
- 04Recent attacks on infrastructure serve as reminders of the fragility of supply chains.
Market implications
Traders should monitor the $100 per barrel level closely as a pivotal point for oil prices. Additionally, developments regarding U.S.-Iran negotiations will be crucial in determining price stability and can influence CAD and AUD movements.
Risks to this view
A significant de-escalation in geopolitical tensions, particularly a breakthrough in U.S.-Iran negotiations, could lead to a rapid drop in oil prices. This would shift the current balance and potentially invalidate the support levels traders are relying on.
Articles The Commodities Feed: Oil supported by geopolitical risks despite supply gains Published 05:02 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download ICE Brent continues to find support around the $100/bbl level, with risks continuing to outweigh an improvement in the supply picture Warren Patterson and Ewa Manthey Source: Shutterstock Energy — Persian Gulf supply increases While there are growing signs of a recovery in oil flows from the Persian Gulf, the market remains nervous about potential supply disruptions from the region. This is keeping prices well-supported for now. This nervousness is likely to persist until there are signs of progress in a deal between the US and Iran.
In the meantime, the risk of further escalation remains very real. Reports yesterday said Saudi Arabia’s East-West pipeline was targeted again. It only recently returned to operation following an earlier attack.
Though the latest attack doesn’t appear to have disrupted flows through the pipeline, it’s a reminder that flows remain at risk. Oil producers in the Persian Gulf continue to adapt to the region's situation. Kuwait said that it is producing at 75% of pre-war levels, while the Saudis also cut the official selling price of their Arab Light into Asia for November loadings, a sign of an improving supply picture.
The European gas market remains vulnerable, despite signs of a more recent pick-up in LNG flows from the Persian Gulf. EU gas storage is just shy of 73% full. This is down from 83% at the same stage last year, and below the 5-year average of 88%.
While injections have been stronger than the seasonal average through September, the region will still struggle to hit storage targets ahead of the winter. How tight the market is through the winter will now largely depend on the weather. A strong El Niño this year will raise hopes for a milder winter.
Metals — Copper edges higher Copper edged higher as the market continues to draw support from tight physical conditions. Concerns over potential US copper tariffs have encouraged metal to flow into the US market, leaving inventories elsewhere relatively constrained. Demand linked to electrification, renewable energy infrastructure and data centre investment continues to provide an underlying source of strength for the red metal.
Meanwhile, trading volumes remained relatively subdued due to the ongoing Golden Week holiday in China. In precious metals, gold edged higher as investors sought safe-haven assets amid growing fiscal concerns in Europe. However, gains may remain capped by elevated Treasury yields, persistent inflation concerns and a firmer US dollar.
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