Commodity Tracker: Middle East special edition

Geopolitical risk has heightened in the wake of the US killing of Iran’s General Qassem Soleimani, with shockwaves being felt across commodities. S&P Global Platts news editors present the latest in this special edition of the Commodity Tracker

1. Business as usual in the Strait of Hormuz

S&P Global Platts Analytics cFlow showed vessels continuing to move through the Strait of Hormuz normally during the morning in Europe. But the fallout from Soleimani’s killing continues, with Iran promising retaliation and US President Donald Trump warning of sanctions against Iraq in response to the country’s parliament voting to expel foreign troops.

2. Tensions elevate Brent crude oil prices

Front-month ICE Brent crude oil futures traded at $69.22/b on Monday lunchtime in Europe, having earlier broken through the $70/b mark in intraday trading. The front-month contract rose nearly 5% on an intraday basis following the US strike on January 3.

3. Concerns about gas supply lift JKM…

Qatar and the UAE – both of which export LNG via the Strait of Hormuz – supplied an estimated 81 million metric tons to world markets in 2019, according to Platts Analytics. Any disruption to Qatar’s mainstay LNG exports, which make up 75.9 million mt of this, would likely have a major impact on the global gas market.

4. …while rising gas prices offer support to carbon

Rising natural gas prices fed through to European coal and carbon prices as the market factored in the possibility of increased coal-fired generation. EU Allowance futures for December 2020 rose 2.4% to €24.98/mt on Friday following the drone attack, but the gains were short-lived, with the contract falling back Monday to a low of €24.49/mt as bearish demand fundamentals reasserted themselves.

5. Gold benefits from flight to safety

Gold jumped on safe haven demand, with the dollar price nearing seven-year highs of around $1,575/oz. Market sources expect continued buying interest as rhetoric on retaliation intensifies. The rest of the precious complex has been pulled higher, with palladium above $2,000/oz.