Oil prices close to $120! War causes Middle East to fall into oversupply reduced production, crude oil expands gains, gold falls.

Due to further production cuts by major oil-producing countries in the Middle East, the Strait of Hormuz has nearly been completely closed, and the United States has threatened to escalate this conflict disrupting the energy market. Oil prices have surged to around $120 per barrel. On Monday, Brent crude oil prices soared by 29% to $119.50 per barrel, marking the largest single-day increase since April 2020. WTI crude oil prices also rose by 31%. Due to the closure of the port in Hormuz, Kuwait and the UAE's crude oil inventories quickly saturated, leading both countries to start reducing production. Iraq also began gradually shutting down crude oil production last week. Gold prices dropped by 3% to $5015 per ounce due to the impact of a stronger dollar and inflation concerns, before the decline narrowed. At the same time, the US dollar strengthened against all major currencies, with the dollar index rising by 0.7%. Since the US and Israel launched airstrikes against Iran over a week ago, there has been no sign of easing in the conflict in the Middle East, intensifying concerns about the inflation crisis among people. The interruption of shipping in the Strait of Hormuz, which usually carries one-fifth of global oil transport, as well as attacks on key energy infrastructure, have pushed up prices of oil and natural gas. US President Trump expressed his views on the surge in oil prices late at night on his social media platform Truth Social, stating that short-term fluctuations are a "negligible cost" for the United States, the world, and peace. He also added that once the "Iranian nuclear threat is eliminated," oil prices will quickly fall. Warren Patterson, head of commodity strategy at Dutch International Group, said, "We see opinions quickly shifting from initially optimistic that this was just a temporary disruption to now looking like it will last longer. As long as oil cannot be transported through the Strait of Hormuz, oil prices will only continue to rise." Over a dozen countries have been involved in this conflict, and Trump has implied that he will continue to push for war. In a social media post earlier last Saturday, he stated that the US will consider striking areas and people within Iran that were previously not targeted. Iranian President Masoud Pezeshkian has vowed not to back down. Local reports on Sunday stated that Iran has appointed the son of the late Supreme Leader Ayatollah Ali Khamenei as the new Supreme Leader, with the Islamic Revolutionary Guard pledging allegiance to the new leader. Meanwhile, the US State Department has ordered all American employees and diplomats in Saudi Arabia to leave the country citing security risks. The conflict in the Middle East has entered its tenth day. Over the weekend, Tehran elected a new Supreme Leader and continued to launch attacks in the Persian Gulf region. Israel also attacked a fuel depot in the Iranian capital and threatened the Iranian power grid. Saudi Arabia once again threatened crucial energy infrastructure, intercepting and destroying drones headed towards the Shaba oil field producing one million barrels per day. Last week, Saudi Arabia was forced to shut down its largest refinery, the Ras Tanura refinery, and sought to transport crude oil to Red Sea ports for export after the closure of the port in Hormuz. Attacks on energy infrastructure and the interruption of shipping in the Strait of Hormuz, which normally carries one-fifth of global oil transport, have pushed up prices of oil and natural gas. Natasha Kaneva, an analyst at JPMorgan, wrote in a report on March 8 that due to continuing saturation of storage facilities and bottleneck issues, the shutdown of Middle Eastern oil production could expand to over 4 million barrels per day by the end of next week. The region accounts for about one-third of global oil production. Haris Khurshid, Chief Investment Officer at Chicago's Karobaar Capital LP, said, "The biggest concern at the moment is still the interruption of the Hormuz River oil and gas pipeline. The shutdown's impact is significant, but the market is truly concerned about the inability of crude oil to circulate." The rise in energy prices, including diesel and other products, is spreading throughout the market. South Korea is considering whether to introduce an oil price ceiling for the first time in 30 years. US retail gasoline prices have surged to their highest level since August 2024, posing a significant challenge to Trump and the Republican Party in the upcoming midterm elections later this year. UK Prime Minister Kiel Stamer has suggested possible interventions to help households cope with soaring energy bills. The Brent crude oil futures spread (the price difference between the two most recent contracts) has widened to $8.59 per barrel, forming a spot premium, indicating a tightening short-term supply, which is a bullish signal. A month ago, the spread was $0.62 per barrel. In this context, as the surge in oil prices has intensified US inflation concerns, gold is under pressure, and the possibility of the Federal Reserve keeping rates unchanged or even raising them has increased. Rising borrowing costs and a stronger dollar are usually unfavorable for precious metals. During the heightened global stock market downturn, gold also serves as a liquidity tool. Although the price of gold has fluctuated significantly, the upward trend has slowed, but has still risen by about 18% so far this year. Trump's impact on global trade and geopolitics, as well as threats to the independence of the Federal Reserve, have supported the prices of safe-haven assets. Increased purchases of gold by major central banks have also boosted gold prices, with the Chinese Central Bank increasing its gold holdings in February, extending its streak of buying gold to 16 months. Ed Meir, a metals analyst at Marex Capital Markets Inc. stated in a report released on March 7 that if the conflict can be relatively quickly resolved, the dollar may weaken and gold prices may rise; however, if the war drags on, the expectation of rising inflation will lead to an increase in the dollar and US Treasury bond yields, reducing the likelihood of rate cuts. He said, "There are opportunities for buying, selling, and watching. For now, watching seems to be the more advisable approach."