Oil prices declined during Asian trading at the start of the week as improving crude flows from the Middle East and moves by Group of Seven nations to use part of their emergency reserves helped ease immediate concerns over supply shortages. Brent crude futures for December fell 0.6% to $101.62 per barrel, while November West Texas Intermediate crude futures dropped 1% to $90.19 per barrel. Despite the selling pressure, losses remained relatively limited as geopolitical tensions persisted and risks surrounding the regional conflict continued to keep a geopolitical risk premium embedded in energy prices.
One of the main factors weighing on prices was the decision by the Group of Seven to release 100 million barrels of crude oil and petroleum products from emergency reserves in an effort to reduce the impact of potential new supply disruptions. A significant portion of diesel inventories is expected to be released within 20 days as markets face growing concerns about tighter supplies of refined products ahead of the Northern Hemisphere winter. The move reflects an effort by governments to prevent sharp increases in energy prices that could feed into inflation as well as transportation and production costs.
At the same time, crude oil exports from the Middle East improved during the final days of September and exceeded levels recorded before the war on several occasions, according to Kpler data. Exports reached between 19.5 million and 22.5 million barrels per day on some days, while the seven day moving average stood at around 18.5 million barrels per day on October 1, compared with an estimated average of 18 million barrels per day before the conflict. This suggests that part of the regional export network has adapted to the security situation through increased use of the Strait of Hormuz and alternative shipping routes, although risks to navigation and transportation remain elevated.
Despite the improvement in crude flows, the supply outlook remains far from stable as attacks in the region continue. Yemen’s Houthis said they had targeted Saudi Aramco facilities in Riyadh and the Khurais area using missiles and drones in response to Saudi led strikes in Yemen, although Riyadh has not officially confirmed the attacks. These developments have kept markets cautious, particularly as any expansion in attacks targeting energy facilities or major shipping routes could quickly revive concerns over oil supplies.
In another notable development, Saudi Aramco cut the official selling price of Arab Light crude to Asian buyers for November by $3 per barrel, bringing it to a discount of $5 against the Oman Dubai benchmark. This represents the widest discount since June 2020. The move can be viewed as an attempt by the company to defend its market share in Asia amid higher shipping costs and increasing competition between suppliers. At the same time, OPEC Plus decided to keep its November production targets unchanged and scheduled its next meeting for November 1, leaving traders focused on actual supply developments rather than changes to official production targets in the near term.
In the metals market, gold posted a limited recovery after suffering its biggest weekly decline since June. The rebound came after US economic data showed a clear slowdown in the labor market, prompting investors to reduce expectations that the Federal Reserve will raise interest rates again at its October meeting. Spot gold rose 0.21% to $4,149.19 an ounce, while gold futures gained 0.4% to $4,176.97. Silver advanced 1.6% to $61.36, while platinum climbed 1.1% to $1,719.71. Meanwhile, the US Dollar Index rose 0.4% to 102.31.
Gold received its main support from the US employment report, which showed that the economy added only 29,000 nonfarm jobs in September. The figure came in below market expectations and confirmed a slowdown in hiring momentum. The weaker data reduced pressure on the Federal Reserve to move quickly with another interest rate increase, particularly as momentum in the labor market continued to soften. Markets are now pricing in around a 20% probability of an October rate increase, compared with levels close to 70% just one week earlier, marking a substantial shift in investor expectations for monetary policy.
Lower expectations for another rate increase are generally supportive for gold because higher borrowing costs and bond yields tend to reduce the appeal of an asset that does not generate regular income. Even so, gold has struggled to produce strong gains as US Treasury yields remain elevated, with some maturities trading around their highest levels in more than two decades. A stronger dollar is also adding pressure because it makes gold more expensive for buyers using other currencies.
These developments follow a difficult month for the precious metal. Gold lost more than 6% in September, marking its steepest monthly decline since June. Concerns that higher energy prices could keep inflation elevated for longer were a major factor behind the decline, as persistent inflation could encourage the Federal Reserve to maintain interest rates at high levels. Several Federal Reserve officials have nevertheless sought to temper expectations of an imminent rate increase, helping restore some balance to gold prices.
Investor attention is now turning to the minutes of the Federal Reserve’s September meeting, which are expected to be released around the middle of the week. Markets will be looking for clearer signals about how policymakers view the interest rate outlook over the coming months. The minutes carry additional importance after the latest meeting resulted in the first interest rate increase in three years, making investors particularly sensitive to any discussion surrounding inflation risks, labor market conditions and economic growth.
At the same time, inflationary pressures linked to energy prices have not disappeared. Continued strength in oil prices amid the widening conflict in the Middle East could limit the Federal Reserve’s ability to adopt a more flexible policy stance. In Yemen, Saudi backed forces have launched an operation aimed at retaking areas controlled by the Iran backed Houthis, adding to concerns about persistent regional tensions and their potential impact on global energy markets.
Gold is therefore caught between two opposing forces. Weakness in the labor market and lower expectations for another interest rate increase are providing support, while elevated bond yields, a stronger dollar and renewed inflation concerns linked to energy prices are limiting the metal’s ability to extend its gains. Gold’s direction over the coming period is likely to remain closely tied to US economic data, Treasury yields, developments in oil prices and any new signals from the Federal Reserve regarding the future path of monetary policy.
You can now benefit from LDN company’s services through the LDN Global Markets trading platform.
