Commodity wrap: Oil slips below $100 as gold, copper surge on US-Iran truce

Oil prices tumbled below $100 per barrel on Wednesday after the US and Iran agreed to a two-week ceasefire, which is also likely to reopen the Strait of Hormuz. 

Both Brent and West Texas Intermediate crude oil benchmarks fell more than 17%, following the announcement. 

Meanwhile, gold prices on COMEX climbed to a near three-week high as softer energy prices and a weaker dollar boosted sentiment. Silver also jumped more than 7% at the time of writing. 

Copper is among the best-performing metals on Wednesday, a likely turnaround given underwhelming performance since the war broke out between the US and Iran.

Oil plunges below $100

Markets reacted with predictable relief following the agreement of a two-week ceasefire between the US and Iran, reached just before the ultimatum deadline. 

Negotiations are scheduled to continue during this period, and the Strait of Hormuz is anticipated to reopen. As a result of the agreement, Brent crude oil prices dropped immediately by $15.

“However, at around USD 95 per barrel, prices remain significantly higher than before the outbreak of the war,” Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, said in a report. 

This appears justified given the ongoing uncertainty about whether the ceasefire will be fully honored.

The 10-point plan put forth by the Iranian leadership, which serves as the foundation for the upcoming peace negotiations, contains demands that the US will likely reject. 

These demands include the complete removal of all sanctions, the pullout of US military forces from the Middle East, and Iran's continued authority over the Strait of Hormuz.

The restoration of maritime traffic through the Strait of Hormuz faces uncertainty. International Energy Agency Chief Fatih Birol emphasised that the extensive damage to the region's energy infrastructure precludes a swift return to normal supply, noting that around 75 energy assets suffered "severely or very severely" damaged.

The estimated reconstruction costs are approximately $25 billion, largely due to significant damage to gas infrastructure and refineries, according to Rystad Energy.

The Brent contract was last at $92.61 per barrel, down 15.3%, while WTI was 16.9% lower at $93.85 a barrel. 

Gold climbs back above $4,800

The 14-day ceasefire in the Middle East (as noted previously) prompted a significant market reaction, with the price of gold surging by as much as 3% to reach $4,886 per ounce.

“This means that gold is not behaving like a typical safe-haven asset, also in times of de-escalation,” Carsten Fritsch, commodity analyst at Commerzbank, said. 

The significant drop in oil prices is resulting in lower inflation risks, which in turn is causing a reduction in expected interest rates.

The consequence of this trend is likely to be a reduction in the number of interest rate increases in Europe, and potentially earlier rate reductions in the US.

“This prospect has led to a fall in bond yields, from which gold, as a non-interest-bearing investment, benefits,” Fritsch said. 

Whether this remains the case depends on whether a lasting peace settlement is found in the coming two weeks or whether there is a renewed escalation thereafter.

At the time of writing, the COMEX gold contract was at $4,806 per ounce, up 2.6%, while silver was at $76.650 an ounce, up 6.4% from the previous close. The gold contract had climbed to $4,886 per ounce earlier in the day, its highest level since March 19.

Copper surges, aluminium flat

Copper, an industrial metal, rose to a three-week peak as improved risk appetite mitigated concerns over significant supply interruptions.

The sentiment has been especially buoyed by the improved clarity concerning shipping routes. 

Of particular importance for the aluminium market is the assurance that vessels can navigate the Strait of Hormuz, as approximately 10% of the world's aluminium supply originates from this region.

“Looking ahead, metals prices will be shaped by whether the ceasefire evolves into a more durable agreement, alongside US monetary‑policy expectations, with Federal Reserve communication, inflation data, and real‑yield dynamics key near‑term drivers,” Ewa Manthey, commodities strategist at ING Group, said in a note. 

The three-month copper contract on the London Metal Exchange was at $12,720 per ton, up 3.1%, while the aluminium contract was flat at $3,463 per ton.