Commodities wrap: oil rallies on Strait of Hormuz risks; gold slips

Oil prices continued to strengthen on Thursday with all eyes on the Middle East conflict, which has disrupted supplies and shipping.

Gold and silver, on the other hand, fell slightly after largely remaining in the positive territory most of the day.

A stronger dollar and concerns over the US Federal Reserve’s interest-rate cutting cycle weighed on sentiments.

After notching up its four-year high on Wednesday, aluminium prices fell on Thursday.

However, the magnitude of the disruption in the Strait of Hormuz and the challenge of bringing curtailed aluminium smelters back online is underscored by Citigroup's updated forecast.

The agency projects aluminium to hit $3,600 in the next few months, with a potential high of $4,000 in a bullish scenario.

Oil keeps climbing

The price of oil climbed over 4% on Thursday, extending its current upward trend.

This increase is a result of the intensifying conflict between the US and Israeli forces with Iran, which is disrupting both supplies and shipping.

Consequently, several major oil producers have reduced their output, while others are implementing measures to safeguard the security of their supply.

The gap between prompt and six-month Brent crude futures contracts has widened to its largest level since July 2022, signaling a tightening of supply in the global oil market.

The Brent crude oil contract last traded at $83.85 per barrel, up 3% from the previous close, while the West Texas Intermediate crude was 4.4% higher at $78 a barrel.

Escalating fuel prices are being driven by a combination of factors, including renewed attacks on tankers in the Gulf and China's measures to curb fuel exports, according to UBS analyst Giovanni Staunovo.

The market for refined products is also facing pressure due to a shortfall in Middle Eastern exports.

This is compounded by the fact that some oil refineries in the Middle East, China, and India have shut down their crude units in response to the ongoing conflict in the Middle East.

Consequently, the diminished supply outlook in fuel markets has pushed European diesel futures to $1,130, their highest value since October 2022.

Following the outbreak of war, vessel traffic in and out of the Strait of Hormuz effectively ceased, leaving approximately 300 oil tankers stranded inside the critical chokepoint.

This data comes from ship tracking information provided by Vortexa and Kpler, which omits the very smallest tankers.

Gold and silver slips

Gold and silver fell slightly as a stronger dollar dented demand for the precious metals.

A stronger dollar makes commodities priced in the greenback more expensive for overseas buyers.

Additionally, the rising cost of oil and gas due to disruptions in the Strait of Hormuz is likely to increase inflation worldwide.

This might also prompt the US Federal Reserve to keep interest rates elevated, which is bearish for gold and silver.

Gold initially surged past $5,400 on Monday, driven by safe-haven demand sparked by the US-Israeli air war against Iran.

However, the precious metal, which had reached a record high of $5,594.82 in January, retreated from these highs as the dollar also gained from the flight to safety.

Financial markets remain unsettled due to investor anxiety over the potential for escalating hostilities in the Middle East.

While the US and Israel persist with strikes against Iran, reports indicate that Iran's retaliatory capacity may be diminishing, possibly due to ordnance depletion.

However, a significant concern persists that Iran may be temporarily holding back to prepare for a more substantial future response.

Silver has managed to recover a significant proportion of the losses made at the beginning of the week.

“It appears to be building some support around $80 per ounce, although it remains well below its all-time high above $121 from the end of January,” said David Morrison, senior market analyst at Trade Nation.

The COMEX gold contract last traded at $5,097 per ounce, down 0.8%, while silver was 1% lower at $82.380 per ounce.