Commodity Wrap: Oil prices hold ground amid Middle East tensions, hope for US rate cut; gold surges

Iran on December 25 denied a claim made by the United States, asserting that a drone launched from Iran had struck a chemical tanker in the Indian Ocean.

Oil prices saw minimal fluctuations on December 26, with market participants directing their attention toward geopolitical tensions in the Middle East. Also, there was a sense of optimism regarding the potential beginning of interest rate cuts by the US Federal Reserve. This positive outlook is rooted in the belief that such rate cuts could spur global economic growth, consequently driving increased demand for fuel.

Brent crude futures witnessed a modest decline of 26 cents, equating to a 0.3 percent decrease, settling at $79.13 per barrel. In contrast, US West Texas Intermediate crude saw a marginal uptick of 3 cents, reaching $73.59 per barrel.

Both benchmark oil indices secured around a 3 percent surge in the past week following Houthi attacks on ships, causing disruptions in global shipping and trade.

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Denmark's Maersk announced on December 24 its readiness to recommence shipping activities in the Red Sea and the Gulf of Aden.

Notably, the significant drop in crude oil prices by almost 18 percent since September, despite ongoing conflicts in Middle East, brings several potential benefits for India. As New Delhi is heavily dependent on energy imports, a sustained dip in oil prices could have positive implications for several sectors, including auto and logistics. Additionally, it will contribute to easing inflation and reducing the Current Account Deficit (CAD).

India completes first-ever rupee payment for crude oil purchase from UAE

Meanwhile, India, ranking as the world's third-largest energy consumer, made its inaugural payment in rupees for crude oil bought from the United Arab Emirates (UAE) in an earnest attempt to boost the global acceptance and use of the Indian rupee.

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More significantly, New Delhi’s decision to start paying for its oil imports from Russia in rupees is part of a larger strategy aimed at diversifying oil suppliers, cutting transaction costs, and establishing the rupee as a viable trade settlement currency.

Gold prices soar

Gold prices saw an increase on December 26, driven by the weakening of the US dollar and bond yields. The market sentiment was influenced by growing expectations of interest rate cuts by the Fed as early as March 2024.

Spot gold rose by 0.5 percent to $2,063.78 per ounce after reaching a more than two-week high of $2,070.39 in the previous session. Likewise, US gold futures recorded a 0.3 percent increase, reaching $2,074.90 per ounce.

(With Reuters inputs)