Commodity weekly

The commodity story has been dominated by the escalating US-Iran conflict this week. This pushed the oil price back above the psychologically important $100 per barrel mark. Brent crude has risen by 8.3% this week, and is back to May highs. There has also been a 30% surge in the price of Natural gas in the past month. 

Ahead of the weekend, there has been no breakthrough or ceasefire between Iran and the US. A major risk for energy supplies was the news that the Houthis had taken control of a key Red Sea island, which is a major shipping route and has been used to transport Saudi Arabian oil during the conflict. 

Added to this, US oil inventories posted another decline last week, falling nearly 400,000 barrels to 424.1mn barrels, this was a more modest decline than expected, buit other supply pressures are building including reports that China is back int he market to buy oil supplies. 

Before we can see the oil price fall back below $100 per barrel, we think we will need attacks in the Middle East to slow significantly, and for tanker traffic through the Red Sea to have safe passage. Without this, we could see further gains in energy prices in the week ahead. 

Energy — the big story

Oil prices may have fallen 3% on Friday, but Brent crude is still above $104 per barrel. Without a formal declaration from both sides that they will allow tankers to pass through the Strait of Hormuz and will cease targeting energy infrastructure, then the price of oil is likely to remain elevated. It is worth noting that Iran has vowed to strike energy infrastructure across the Middle East in response to further US attacks, and the US President said this week that he does not expect the war to end until after the US Mid Term elections in November. So, we could see an escalation in attacks in the coming weeks. 

The oil futures price is higher by 18% in the past month, and we expect a wave of oil price upgrades in the coming days to reflect the recent energy price spike. For example, Goldman Sachs raised its Brent/WTI forecasts by $5 to $85/$80 for December 2026, warning Brent could top $120 in 2027 if Gulf output stays well below prewar levels. US diesel has also hit record highs as the conflict has widened and Iran-backed Houthi militants attacked Saudi energy facilities this week, forcing a temporary halt to some operations, and a drop in Saudi Arabia’s oil production levels last seen in the 1990s. 

Precious metals

The gold price has been relatively stable this week, especially compared to energy. It is down 2% on the week, however, it did rise by 0.5% on Friday after the stronger than expected US CPI report for August. Gold is currently trading below $4,430/oz, recovering some recent losses. However, the week ahead holds a key test for the oil price. After the August CPI reading, the probability of a Fed rate hike next week surged to 86%. A rate hike has the potential to dampen demand for gold, particularly if the Fed signals that it may embark on a series of rate hikes to combat rising inflation. 

However, if the Fed defies the market, and fails to hike rates next week, expect the gold price to surge, potentially back towards the 200-day sma at $4547 and beyond. Gold is extremely sensitive to changing interest rates. It is a non-yielding asset, so when interest rates rise, this is bad news for gold. However, if rates are left unchanged by the Fed next week, at the same time as there is an energy price spike, this is the ideal scenario to hold gold, and we could see a rush of demand. 

Fed watch — key event risk for commodities next week

The FOMC meets on September 15–16, with a live hike/hold debate going on ahead of the meeting. Mere months ago, we were expecting the Fed to cut rates in the second half of the year, but there has been a notable reversal. 

There is currently an 86% chance of a hike already priced in for a rate hike, so the market is positioned for higher interest rates. This has been reflected in a stabilisation of the USD on Friday. If the Fed confuses the markets, or fails to hike as expected, then demand for commodities, especially gold, is likely to rise. 

However, it is a different story for the energy price. It is hard to contain inflation that is caused by an energy price spike and a supply shock. The only way the Fed and other central banks can do this is by curtailing demand in the economy, and hiking the cost of capital. This can cause demand destruction, which may ultimately lead to lower energy prices down the line. If it seems more likely than not that the Fed will continue to hike rates, then we could see the upside for energy prices get capped. 

Metals/industrials: copper price backs away from record high

World Bank data shows base metals rebounding through Q3 on resilient demand and copper-specific supply disruptions, though broader forecasts still see metals prices roughly stable for the year. The copper price has backed away from record highs, as Fed rate hike bets rise. The copper price is sensitive to the economic outlook, and higher rates could hit economic growth. However, ultimately we do not see copper prices tumbling too far, because it is a vital metal for the AI infrastructure build out, which remains a key source of demand. The 50-day sma at $1393 is key ST support. 

The impact on UK markets and the economic outlook

• Shell, BP: they are direct beneficiaries of the oil spike but they are also exposed to any supply-chain disruption in the Gulf. For now, supply disruption concerns are secondary to the rising oil price, and BP’s share price rose 5% this week, suggesting that oil majors could see their share prices rise with oil prices. 

• Inflation concerns: these are relevant for BoE policy commentary next week alongside the Fed decision. 

• Unleaded petrol costs rose to their highest level in 4 years, which adds to the cost-of-living story for UK consumers. 

Key events in the Week ahead

• FOMC decision, Sept 16

• Ongoing US-Iran conflict developments. The war in the Middle East is the dominant risk factor overshadowing everything else in the coming week. 

Chart 1: Brent crude 

Source: XTB

Chart 2: Gold 

Source: XTB 

Chart 3: Copper 

Source: XTB