The Commodities Feed: Oil surges as market reprices Middle East escalation

Oil prices surged, reaching over $110 per barrel, as market participants reassessed the impact of the escalating conflict in the Middle East. This marked a more than 6% increase from the previous day's settlement. The market's reaction reflected a growing recognition of the substantial threat to regional supply and the fragility of the situation, despite ongoing shipments through the Strait of Hormuz.

Saudi Arabia's energy infrastructure and Red Sea exports were increasingly at risk, with the Houthis targeting Saudi Arabia and gaining control of the Red Sea port of Mokha. Saudi Arabia's August production fell to 6.24 million barrels per day, the lowest level since the 1990s, with the country relying on inventory to meet market demand, supplying 7.12 million barrels per day.

Meanwhile, Iraq increased its output by 664,000 barrels per day, while Chinese refineries ramped up production, with independent refiners operating at nearly 63% capacity, up from 45% in July.

The recent supply concerns were compounded by US crude oil inventories falling by just 391,000 barrels, with total US crude oil inventories declining by 1.64 million barrels, accounting for SPR releases. US gasoline and distillate stocks increased by 1.27 million barrels and 2.09 million barrels, respectively, providing some relief to refined product markets.

Meanwhile, copper prices fell sharply following a Reuters report that the US had not yet decided on refined copper tariffs. The fall was more than 3% from a record $14,875 per ton, as the market had largely assumed tariffs would go ahead. Copper's longer-term outlook remained positive, but the latest reversal showed the vulnerability of prices to any weakening in tariff expectations.

Sugar prices also rose by 1.8%, driven by Indian import demand, disruptions in Brazilian cane crushing, and El Niño's impact on Asian production. India introduced a duty-free import quota in August to rebuild domestic supplies amid record-high sugar prices. In Brazil, heavy rainfall in the Center-South region delayed crushing operations.

The USDA was expected to release its monthly WASDE report, which may revise up its corn and soybean output estimates.