Crude oil prices surged more than 2% in Asian trade Friday as jittery investors, fearing potential supply disruptions, stepped up purchases after the US launched missile attacks on Syria, while gold surged more than 1% with investors queueing up for safe-haven assets.
The US fired a barrage of cruise missiles at Syria following this week's chemical weapons attack in the country as Washington intensified its efforts to mobilize a coalition to remove Syrian leader Bashar al-Assad.
"In the short term, oil prices could spike due to potential short squeezes from geopolitical risks, especially ahead of Friday's US non-farm payroll data," Gordon Kwan, head of oil and gas research at Nomura, said in a research note.
About 60 US Tomahawk missiles, fired from warships in the Mediterranean Sea, targeted the airbase in Syria, according to media reports.
"Iran and Russia are big supporters of [Syrian President] Bashar al-Assad. There might be retaliation in the form of them cutting off supplies," OANDA senior market analyst Jeffrey Halley said in a report.
"There is an implied potential threat to supplies from the Middle East. Most of the crude comes from there. I expect WTI and Brent to remain very well elevated," he added.
Following news of the US missile attack, crude futures soared in Asia.
At 11:37 am Singapore time (0337 GMT), the ICE June Brent crude futures were up 80 cents/b (1.46%) from Thursday's settle to $55.69/b, while the NYMEX May light sweet crude contract was 86 cents/b (1.66%) higher at $52.56/b.
Front-month ICE Brent hit an intra-day high of $56.08/b following the news, while NYMEX light sweet crude contract rose to $52.94/b.
Some analysts said the spike in crude prices was less a response to direct disruption to supplies than to the threat of future disruptions should state supporters of the Assad regime choose to retaliate.
"As long as the military actions in Syria is well contained (not spreading into Iraq), [as] Syria is no longer a significant oil producer, any big spikes in oil prices could prove [to be] temporary," Kwan said.
"We maintain our $60 and $70 Brent oil price targets for 2017 and 2018 respectively based on fundamentals instead of geopolitical speculations," he added.
GOLD RUSH
Gold prices on the Shanghai Gold Exchange rose to Yuan 283.2/gram ($41/g) as of 11:07 am Beijing time (0307 GMT), after opening at Yuan 280.35/g, or up 1%. Spot gold climbed nearly 1.5% to around $1,270/oz, the highest since November. Analysts expect safe-haven buying to continue for a few days.
"I can see why immediately gold price went up, which is an usual reaction whenever there is war. People tend to invest in gold," a Beijing-based analyst said.
OANDA's Halley added: "Geopolitics aside, safe-haven risk aversion should be the theme of the day now with gold and silver the major beneficiaries. Gold has broken the 200-day moving average intra-day and has tested its upper resistance at $1,264, the February 28 high. A daily close above these levels can open a technical move to $1,300/oz, with support now at the $1,250/oz level."
With the latest rise in spot gold prices, the market has gained about 10% so far this year.
The dollar fell against the safe-haven Japanese yen after the attacks. The dollar gave up its early gains and slipped 0.3% to Yen 110.46, compared with a session high of Yen 110.99.
METALS, PETCHEMS CAUTIOUS
In the base metals market, the LME Select three-month price was at $5,866.50-$5,868/mt at 11:17 am Singapore time Friday, compared with $5,900-$5,900.50/mt Thursday.
Market participants said metal futures might see limited impact, while the impact on gold and the dollar would be much more.
"Gold as a safe haven will rise in the short term, while in the long term copper will rise due to its application in military equipment," said a Western copper concentrate producer.
Participants in the petrochemicals markets said it was too early to assess the real impact.
But most markets, especially aromatics, look set to continue their upward trend on rising crude prices. Toluene price discussions for May cargoes were up $3-4/mt, or 0.5-0.6%. Paraxylene discussions were up $4/mt, or 0.5% for May-June.
Olefins and polymer markets were quiet, as they are generally slow to react to crude oil fluctuations, being driven more by supply-demand indications. But the market could react later in the day as sentiment percolates down to downstream markets.
Agriculture markets have so far not reacted in a big way but participants said they were keeping a close eye on how currencies, such as the rouble, reacts. If the dollar weakens against the rouble, CBOT futures are likely rise as they price in higher risk associated with the threat of war. The CFTC Commitment of Traders report, which indicates managed-money positions on the CBOT, is scheduled for release later Friday.
