Commodity markets remain calm

XTI/USD

Key zone: 85.00 - 90.00

Buy: 93.50 (on a confident breakout of the 90 level); target 97.50-100.00; StopLoss 92.70

Sell: 83.50(on strong negative fundamentals); target 78.50; StopLoss 84.30

The current dynamics of commodity markets are almost entirely dependent on developments in the Middle East. Without taking this geopolitical factor into account, any forecasts lose their meaning. At the same time, after Trump’s latest statements the situation around the conflict remains uncertain and suspended.

Reminder

Oil prices rose above $110 per barrel amid the military confrontation with Iran and disruptions in energy supplies in the Middle East. The escalation of the conflict led to the de facto closure of the Strait of Hormuz — a strategic route through which about one fifth of global oil supplies passes.

Because of threats to shipping, reductions in production, and the overall rise in geopolitical tensions, the market faced one of the largest price spikes in recent years.

At the same time, for American stock indices and even for cryptocurrencies, the key factor remains precisely the price of oil. If a similar conflict were taking place not in Iran but, for example, in Afghanistan, its impact on commodity and equity markets would be significantly weaker, and the main benefit would be received only by the defense industry sector.

• At one time Trump received serious support from oil companies in the state of Texas, which benefit from high oil prices. In addition, one of the strategic priorities of the administration remains restraining China’s economic growth, which implies reducing Beijing’s ability to buy raw materials at significant discounts.
• OPEC+ countries announced an increase in production limits. Theoretically this may put pressure on prices, however the scale of the increase is relatively small. In addition, a significant portion of raw materials is currently effectively blocked in the area of the Strait of Hormuz.
• The Trump administration stated that the United States is ready to provide insurance for vessels despite increased risks. From the standpoint of foreign policy such a decision appears logical. However, in practice most shipowners and oil traders are not ready to expose fleets and cargo to such serious threats.
• Oil quotations may still react with short-term spikes to news events, however the main impulse of growth has already been realized. Now politicians and the largest participants of the commodity market are essentially searching for a compromise solution that would satisfy the main parties to the conflict.

At the latest press conference in his golf club in Miami, Trump stated that the war with Iran could end “very soon.” After these statements oil, natural gas and Gold corrected and moved into a waiting mode for more convincing signals.

And what is the result?

While “Superman Donnie” is trying to find the politically most advantageous scenario for himself to exit the crisis, the markets have already priced in the probability of an early end to the active phase of hostilities.

However, if the blockade of the Hormuz route drags on or a new escalation follows from Washington, commodity quotations may react sharply again. Moreover, each subsequent price spike may turn out to be larger.

At the moment the only scenario in which the war will again begin to exert sustained pressure on commodity markets is its transition into a long protracted phase. So far most market participants do not believe in such a development.

If the conflict is ended or at least temporarily frozen, markets will gradually detach from the geopolitical agenda and once again focus on fundamental factors: macroeconomic statistics, corporate earnings and inflation dynamics.

By the way, the latest U.S. data on producer inflation already show alarming signals. But this factor will become the subject of a separate analysis, since the war in fact is still ongoing.

So we act wisely and avoid unnecessary risks.

Profits to y’all!