Commodity Trends

Tension in the Middle East Causes Gold and Oil Prices to Surge

April 29, 2024

Jimmy Jean, Vice-President, Chief Economist and Strategist
Marc-Antoine Dumont, Senior Economist • Florence Jean-Jacobs, Principal Economist

Highlights

When Iran attacked Israel a few weeks ago, the world held its breath. However, the Israeli government’s muted response and Iran’s statement that there would be no further attacks unless it was provoked helped ease tensions in the Middle East. WTI prices have dropped from US$88.34 per barrel on April 12 (the day of the attack) to US$85.00 per barrel at the time of writing. That said, geopolitical tension remains palpable, and last week’s events were a direct confrontation in the world’s biggest oil-producing region. Supported by expected growth in oil demand, crude prices are also likely to continue to build in a risk premium, which will probably impact prices of refined products like gasoline. Meanwhile, natural gas prices continued to drop in March due to abundant supply and low seasonal demand.
Uncertainty has once again pushed investors toward safe-haven assets like gold, which hit a record-breaking US$2,429.71 per ounce. However, the 17% year-to-date surge in gold prices isn’t just a result of recent skirmishes in the Middle East. Increased central bank gold reserves have also played an important role, particularly in Europe and emerging Asia. We expect the price of gold to remain high in the near term.
Other commodities had a quieter month in March. Better-than-expected performance by China’s economy—including its manufacturing sector—and somewhat limited global supply helped to underpin the price of copper, which increased faster than anticipated. In contrast, China’s property market contracted again in March, with sales and average home prices both falling, dampening further iron prices as we had anticipated. We expect prices of all base metals—aluminum, copper, nickel and iron—to rise slightly by the end of the year as the global economic slowdown abates and more sustained growth returns. However, international aluminum and steel prices could be impacted by another increase in US tariffs on Chinese exports.
Oilseed and grain prices continue to trend down as international production is sufficient and demand is moderate and stable. Brazil’s soybean crop was more abundant than expected. Chinese demand is sluggish and reflected in weak imports of soybeans and grains used for animal feed. The Chinese government has also reduced its swine herd targets, which could further limit demand for feed grain.
Lumber prices remain low, and March’s gains were erased by mid-April. Prices are expected to recover slightly this summer, but how much they increase will depend on several factors. The strength of the US economy suggests sustained demand for housing starts and renovations, but momentum may stall if the Fed keeps interest rates higher for longer. If shuttered Western Canadian sawmills decide to restart operations this summer, price growth may remain in check. Wildfires could also trigger increased volatility. Pulp and paper prices have been stable since fall 2022.

Scenario Adjustments

Energy: Oil prices revised upward to reflect the risk premium.
Base metals: Copper prices revised upward.
Precious metals: Revised upward to reflect current geopolitical tension.

Main Commodities

Commodities Prices

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NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively.

IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.