The Commodities Feed: Oil nears $100/bbl amid Persian Gulf escalation

Oil prices approached $100 per barrel on Friday as Middle East tensions heightened. The US executed strikes against Iranian oil tankers near Kharg Island, hitting five vessels in retaliation for Iran's attempt to target a US Navy warship. Iran subsequently launched ballistic missiles toward Jordan and warned that vessels in the Persian Gulf could be targeted.

These recent events underscore the fact that a resumption of talks appears to be still a distant prospect, leading to the expectation of continued pricing in a substantial risk premium.

Despite the escalation, projections for oil flows through the Strait of Hormuz are inching higher, with estimates suggesting volumes at around 10 million barrels per day, equivalent to 50% of pre-war levels. These figures now align more closely with the US's earlier projections of what was flowing through the crucial choke point.

Initial production data from OPEC started trickling in, with Bloomberg's survey indicating a 900,000 barrel decrease in August compared to the previous month, bringing OPEC output down to 19.91 million barrels per day. This decline was primarily attributed to Saudi Arabia, where output was estimated to have dropped by 1.12 million barrels due to the ongoing Middle East tensions. Meanwhile, Iraq and Kuwait reported increased output, rising by 270,000 and 70,000 barrels respectively.

Chinese crude oil imports rebounded in August, averaging 8.88 million barrels per day, a 5% increase month-over-month, and significantly above the 7.15 million barrels per day imported in June. However, these imports remain far below the levels seen a year ago, with overall imports down by 14.7% year-over-year. China's substantial crude inventories suggest that lower import levels are likely to be sustainable, a situation that may be beneficial for the market, especially if the Middle East situation escalates and leads to further supply disruptions.

In the metals sector, copper prices surged to another record high on the LME, with three-month futures nearing $14,800 per metric ton. The upward trend is driven by expectations of US tariffs on refined copper imports, which have resulted in large volumes of metal being positioned in the US. COMEX inventories have reached record levels, while a shortage of copper outside the US is tightening the London market and putting pressure on short positions.

The market awaits President Trump's decision on the refined copper tariffs, with a proposed 15% duty from January 2027, rising to 30% in 2028. If approved, these tariffs are expected to continue drawing metal into the US. However, an exemption or delay could potentially unwind the trade and ease tightness elsewhere. The rally in copper prices is likely to remain policy-driven, with prices potentially experiencing a sharp correction if tariffs are delayed or ruled out, particularly given the subdued demand.