Commodities: Oil sheds gain, but gold up on Middle East tensions

Gold futures rallied on Monday amid growing tensions between Iran and Saudi Arabia over the execution of a prominent Shia cleric Sheikh Nimr al-Nimr by the latter, but an uptick in oil futures stalled later in the European session on inventory data.

The slain cleric was an outspoken religious leader hailing from Saudi Arabia’s Shia minority. Following his execution, the Saudi embassy in Tehran was attacked by protestors on Sunday, with the Iranian government joining the condemnation of Riyadh.

The incident subsequently prompted Saudi Arabia to sever diplomatic ties with Iran, as well as cancel all commercial flights between the two countries. Saudi allies Bahrain, Sudan and United Arab Emirates also downgraded diplomatic ties with Iran.

At 1630 GMT, the Brent front-month futures contract was down 0.91% or 34 cents at $36.94 per barrel, having risen by almost 4.4% at one point. Concurrently, WTI was down 1.38% or 51 cents $36.53 per barrel.

Geopolitical uptick was countered by a scheduled data release from the US Energy Information Administration which noted that crude inventories at Cushing, Oklahoma - the delivery hub for WTI futures - rose to a record high of 63m barrels in the week ended 25 December, while domestic production climbed for a third week to 9.2m barrels per day.

Julian Jessop, Head of Commodities Research at Capital Economics, said, “Saudi-Iran tensions are unlikely to provide a lasting boost to oil prices. Ample global stocks of crude and higher production elsewhere mean that geopolitical risks from the Middle East are not as great as they once were.”

“Saudi Arabia might now be even less willing to cut its own output to support oil prices if Iran would be a major beneficiary.”

Meanwhile, precious metals were led higher by gold futures as investors sought safe havens to park their cash. COMEX gold for February delivery was up 1.66% or $17.60 to $1077.80 an ounce, while spot gold was 1.35% or $14.30 higher at $1075.40. COMEX silver rose 0.74% or 10 cents to $13.91 an ounce, but spot platinum was down 0.93% or $8.28 at $881.00 an ounce.

Base metal futures fell across the London Metal Exchange board following declines in Asia on weak data from China. Factory activity in Asia’s largest economy slowed down in December, mainly as a result of weakness overseas, but analysts pointed to improvements in local conditions as reasons for optimism.

Caixin’s ‘unofficial’ manufacturing sector purchasing managers’ index for December retreated from a reading of 48.6 for November to 48.2 in December. The median estimate from analysts was for a reading of 48.9.

Unsurprisingly, three-month delivery contracts of primary aluminium (down 3.1%), copper (down 2.2%), nickel (down 3.4%), lead (down 1.9%), zinc (down 2.5%) and tin (down 1.2%) headed lower.

Finally, agricultural commodity futures were firmly in negative territory. CBOT corn (down 1.95%), wheat (down 2.71%), ICE cotton (down 0.85%), cocoa (down 2.21%) and CME live cattle (down 0.84%) futures were heading lower in early calls Stateside.