The commodities feed: False US-Iran hopes or the real deal?

ING Global Economics Team ING Economic and Financial Analysis

Energy – Hopes grow for US-Iran talks

Energy markets saw an aggressive pullback yesterday, with ICE Brent settling 7.6% lower and prices falling back below $105/bbl. The move comes amid new hopes for potential US-Iran talks. While we’ve seen this before with nothing materialising, positive signals appear to be coming from both the US and Iran. President Trump responded “no” to a question on whether he would strike Iran following the midterm elections. Iran’s president said that the government has been given more authority from the country’s supreme leader to negotiate with the US. Despite these positive signals, it’s probably too early to think escalation risks have passed. On Monday, the US carried out strikes on Iran’s Qeshm Island, reportedly in response to Iran firing at a US aircraft.

What is clear, though, is that strong signals of progress in peace talks would mean more downside for prices. The market still has a large risk premium baked in, particularly given the strong oil flows from the Persian Gulf.

European gas prices also came under significant pressure on the back of US-Iran hopes, with TTF settling 8.7% lower on the day at a little under EUR95/MWh. For the gas market, de-escalation is crucial, as LNG flows from the region haven’t recovered as much as on the oil side. This leaves the market vulnerable as it heads deeper into the European heating season.

Metals – Gold climbs back from one-year low

Gold rebounded on Monday after last week’s sharp sell-off, helped by the pullback in oil prices and bargain hunting at lower levels. The precious metal settled 1.85% higher on the day, recovering from its lowest level in a year, after signs of easing US-Iran tensions sent crude sharply lower. The drop in oil eased some of the inflation concerns weighing on gold, providing additional support.

The recovery follows a difficult period for gold. It's caught up in a broader risk-off move and heavy selling across technology stocks. Geopolitical risks remain elevated, while expectations for higher interest rates weigh on sentiment. We expect gold to regain some ground following its recent correction. But the near-term outlook remains challenging amid expectations for higher rates and a stronger dollar, limiting the scope for a more sustained recovery.

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ING Global Economics Team

ING Economic and Financial Analysis

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