Slipping oil, gold dash bullish forecasts

Two commodities — crude oil and gold — that are expected to rally in the wake of the Russian invasion of Ukraine had slipped back to pre-invasion levels, dashing predictions of a sustained surge.

Prices of both crude benchmarks reversed to pre-invasion levels on Friday afternoon, defying predictions of market experts that some that the oil markets would see “apocalyptic” pricing.

Similarly, prices of gold, dubbed “the bad news metal” or safe haven option for investors during times of conflicts and geopolitical crises, reversed course after scaling a 15-month high on Thursday as investors remained on edge while assessing the impact of Russia’s invasion of Ukraine and Western sanctions.

As Russia moved into Ukraine on Thursday by land, air, and sea, crude oil prices shot up in an already volatile oil market. Fears that Russia—the world’s third-largest crude oil producer and exporter of 6-8 million barrels per day of crude oil and refined products—may find itself unable or unwilling to supply its usual customers with crude oil and natural gas.

The price of Brent crude oil reached $105.79 on Thursday, after rising more than $8 per barrel. WTI crude oil topped $100 per barrel earlier on Thursday.

But by Thursday afternoon, prices had begun to recede after President Biden announced a second wave of sanctions that did not include any energy-related sanctions—Russia’s bread and butter.

On Friday, prices slipped even further, with Brent eventually falling back to $96.99 (-2.23 per cent) at 2:00 p.m. ET, back the levels seen prior to the invasion.

Analysts said the path that WTI crude oil prices took was similar. By Friday, WTI had slipped back to $91.22 per barrel.

Spot gold, which even was forecast to be crossing $2,000 and reaching $2,500, declined 0.9 per cent to $1,885.11 per ounce by 11:40am ET Friday, erasing most of its gains for the week. US gold futures suffered a larger loss, down two per cent at $1,887.40 per ounce in New York.

Bullion pulled back following these developments, after surging to the highest since 2020, as traders continue to weigh the effects of these sanctions on Europe’s worst security crisis since World War II.

Precious metal analysts said the turnaround in gold prices was “due to a combination of a heavy overbought market running out of momentum ahead of $2,000, fears Russia would need to sell gold to prop up the rouble and President Biden’s sanctions underwhelming the market in terms of impact,” said Ole Hansen, head of commodity strategy at Saxo Bank

“We think the price drop is premature, there is a risk of further escalation in the conflict and it could be just a temporary correction,” Commerzbank analyst Daniel Briesemann said.

Xaio Fu, head of commodities markets strategy at Bank of China International, cautioned that the risk premium and safe haven demand will continue to support gold, but the upside is limited by the possible rate hike by the US Federal Reserve this March.

— issacjohn@khaleejtimes.com