Iran will decide if oil bulls outdo gold bugs – Breakingviews:
All that glitters is not gold. The price of oil shot up even more than that of the yellow metal after a U.S. drone strike on Friday killed Iranian military commander Qassem Soleimani. Tehran’s response will dictate which of the two commodities ends up on top.
Concern that an escalation in Middle East tensions might disrupt oil supply boosted the price of a barrel of crude by nearly 7% from Thursday’s close, to a high of $70.74 on Monday. Safe havens like high-grade government bonds, the Swiss franc, and gold also rose. The price of an ounce of the precious metal on Monday hit $1,582.59, its highest in nearly seven years and up almost 4% from where it had closed on the eve of the drone strike.
A Goldman Sachs model suggests the jump in energy prices can be interpreted as traders pre-emptively pricing in an outage of 800,000 barrels per day (bpd) for three months, or factoring in a 30% chance of a 2.7 million bpd outage for three months. But the Organization of the Petroleum Exporting Countries has some spare capacity. The group only last month agreed to cut an extra 500,000 bpd, and Saudi Energy Minister Prince Abdulaziz bin Salman said at the time that the effective reduction could be as much as 2.1 million bpd, given Saudi would carry on cutting more than its quota. Bringing that supply back on stream would be easier than increasing the supply of gold, which was in high demand even before geopolitical risks flared.
All that glitters is not gold. The price of oil shot up even more than that of the yellow metal after a U.S. drone strike on Friday killed Iranian military commander Qassem Soleimani. Tehran’s response will dictate which of the two commodities ends up on top.
Concern that an escalation in Middle East tensions might disrupt oil supply boosted the price of a barrel of crude by nearly 7% from Thursday’s close, to a high of $70.74 on Monday. Safe havens like high-grade government bonds, the Swiss franc, and gold also rose. The price of an ounce of the precious metal on Monday hit $1,582.59, its highest in nearly seven years and up almost 4% from where it had closed on the eve of the drone strike.
A Goldman Sachs model suggests the jump in energy prices can be interpreted as traders pre-emptively pricing in an outage of 800,000 barrels per day (bpd) for three months, or factoring in a 30% chance of a 2.7 million bpd outage for three months. But the Organization of the Petroleum Exporting Countries has some spare capacity. The group only last month agreed to cut an extra 500,000 bpd, and Saudi Energy Minister Prince Abdulaziz bin Salman said at the time that the effective reduction could be as much as 2.1 million bpd, given Saudi would carry on cutting more than its quota. Bringing that supply back on stream would be easier than increasing the supply of gold, which was in high demand even before geopolitical risks flared.
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