Middle East Conflict Another Boost for Gold, Headwind for Copper — Market Talk

Crude oil prices would likely rise to roughly $90-$95/barrel if retaliation by Iran disrupts flows of oil from the Middle East, says ANZ analyst Daniel Hynes. After U.S. strikes on Iranian nuclear sites over the weekend, the risk of supply disruptions has risen significantly, says Hynes. "This could be via attacks on U.S. facilities across the region or disruption of oil and gas flows through the Strait of Hormuz," he says. "Yemen's Houthi rebel group has also issued fresh threats against American ships in the Red Sea." Non-military action by the U.S. could include stricter sanctions on Iran's oil exports, Hynes adds. Front-month Brent is up 2.2% at $78.67/barrel. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

Gold edges higher in the early Asian session amid worries over the Middle East conflict. "Recent escalation between the U.S. and Iran, marked by airstrikes on Iranian nuclear sites, has introduced a new layer of uncertainty into global markets," DHF Capital's Bas Kooijman says. "The fear of a broader regional conflict in the Middle East has driven a surge in demand for gold as investors seek to mitigate risk," the CEO and asset manager adds. Spot gold is 0.2% higher at $3,373.57/oz. (ronnie.harui@wsj.com)

Markets are awaiting Iran's inevitable response to U.S. attacks on three nuclear sites at the weekend, says Commonwealth Bank of Australia analyst Vivek Dhar. "A symbolic retaliation that results in a ceasefire with Israel is the most bearish scenario for oil prices and suggests Brent oil futures normalizing around $60‑$65/barrel," says Dhar. A substantial retaliation could involve disrupting trade through the Strait of Hormuz, he says. It could also include attacks on U.S. military bases and assets of U.S. allies in the region, including oil facilities, says Dhar. Iran might also "lean on proxies in Iraq and Yemen (i.e. Houthi rebels) to fight." If Iran disrupts shipping through the strait, Brent could reach at least $100/barrel, Dhar says. Front-month Brent is up 2.5% at $78.91/barrel. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

Oil climbs in the early Asian session after the U.S. attack on Iran's nuclear sites over the weekend. "Markets now await Iran's inevitable response," CBA's Vivek Dhar says in a research report. "Iran needs to first consider whether it wants a symbolic or substantial retaliation," the analyst says. A substantial reaction has three major considerations, including a disruption of shipping through the Strait of Hormuz, Dhar says. Under such a scenario, Brent oil could reach at least $100/bbl, Dhar adds. Front-month WTI crude oil futures are up 2.5% at $75.67/bbl; front-month Brent crude oil futures are 2.4% higher at $78.89/bbl. (ronnie.harui@wsj.com)

Oil markets are pricing in the largest risk to energy flows through the Strait of Hormuz in recent history, says Daniel Ghali, senior commodity strategist at TD Securities. He reckons a cutoff is unlikely. He notes the importance of the strait for Iranian energy exports, the majority of which flow to China. There is a relatively limited scale of U.S. energy imports flowing through the strait, Ghali adds. The strait is also important for regional food security, he says. "The strategic chokepoint remains critical flow global energy flows," says Ghali. Yet "to this day, zero barrels have been disrupted." Front-month Brent is up 2.5% at $78.91/barrel. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)