The energy sector has delivered the strongest performance across commodity markets. Renewed tensions in the Middle East triggered the largest one-day increase in oil prices in more than three months, pushing Brent crude above USD 86 per barrel. Diesel and European natural gas recorded the sharpest gains.
The pace of the increase reflects investor positioning as much as market fundamentals. Significantly undervalued oil markets, aggressive short-covering and limited summer liquidity have amplified the geopolitical risk premium.
However, several factors may limit further gains in oil prices, including weakening demand in China, the approaching end of the seasonal peak in consumption, and pipeline infrastructure in Saudi Arabia and the United Arab Emirates that allows some shipments to bypass the Strait of Hormuz.
Gold has shown surprising resilience, potentially suggesting that investors are increasingly focusing on the broader economic consequences of a prolonged energy shock rather than solely on its inflationary impact.
The Bloomberg Commodity Total Return Index rose strongly over the past week, driven primarily by the energy sector as renewed geopolitical tensions in the Middle East once again dominated commodity markets. The energy segment gained almost 9%, significantly outperforming industrial metals, agricultural commodities and soft commodities. Precious metals were the only group that remained under pressure.
Investor Positioning Turns a Geopolitical Shock Into a Sharp Price Rally
According to Ole Hansen, Head of Commodity Strategy at Saxo Bank, the latest escalation began last week following an attack on an Iranian tanker, which prompted renewed US military strikes. The situation intensified rapidly after President Donald Trump decided to reinstate the blockade of Iran and impose a 20% charge on all cargo passing through the Strait of Hormuz.
Brent crude recorded its largest one-day gain in more than three months, rising by over 10% before exceeding USD 86 per barrel. Investors began closing short positions on a large scale and repricing the risk of supply disruptions in the Persian Gulf.
Although geopolitical events provided the initial trigger, the scale of the move illustrates how vulnerable the market had become to an upside surprise. In recent weeks, hedge funds had systematically reduced their exposure to rising oil prices, assuming that improving security in the region, weak demand from China and increasing OPEC+ production would keep prices under control.
The return of supply-side risks caught many market participants by surprise, forcing them to close short positions rapidly in an environment of limited summer liquidity. With relatively few sellers in the market, even moderate buying pressure translated into substantial price increases.
The current rally therefore reflects both a rising geopolitical risk premium and forced investor repositioning, with technical factors amplifying an underlying fundamental outlook that remains mixed.
Why Brent at USD 100 Is Not Yet a Foregone Conclusion
Despite the recent gains, several factors could limit a further move towards USD 100 per barrel.
First, the market has already rolled over to September Brent contracts, meaning prices increasingly reflect demand after the peak summer travel season in the Northern Hemisphere. From late August onwards, seasonal refinery demand typically begins to decline, reducing pressure on the oil market.
Second, China remains a critical factor. Last month, the country’s crude oil imports fell to their lowest level in almost a decade as refineries reduced processing in response to weak domestic demand and persistent economic uncertainty.
Should prices continue to rise, Beijing is likely to rebuild inventories gradually, avoiding becoming the marginal buyer that pushes prices even higher. During previous periods of geopolitical tension, weak Chinese demand repeatedly acted as a stabilising force in the global oil market.
Third, although the Strait of Hormuz remains one of the world’s most important energy transport bottlenecks, the market is also taking into account the fact that Saudi Arabia and the United Arab Emirates have significant pipeline infrastructure capable of bypassing part of the route.
This infrastructure cannot replace all exports from the region, particularly those originating in Iraq, Kuwait, Qatar and Iran, but it reduces the likelihood of a complete halt in supplies.
Refined Fuels Are the Main Source of Inflationary Pressure
According to Ole Hansen, while crude oil provides only part of the picture, refined fuels point to a much tighter market.
Diesel prices have risen particularly sharply. Both European gasoil futures and US ultra-low-sulphur diesel futures gained approximately 18% over the past week. At the same time, European natural gas prices increased by almost 14%, pushing Dutch TTF futures above EUR 53 per megawatt-hour, their highest level in three months.
Unlike the crude oil market, the ability to increase the supply of refined fuels is much more limited. Some refineries in the Middle East remain affected by the conflict, while Russian restrictions on diesel exports continue to reduce global availability.
In addition, global refining capacity remains constrained, making it difficult to translate higher crude oil supplies quickly into increased production of diesel and petrol.
Refining margins have risen sharply, leaving end users increasingly exposed to fuel costs normally associated with much higher Brent crude prices.
This distinction is important because diesel and petrol prices directly affect transportation, industrial production, agriculture and inflation. As a result, they can have a much stronger impact on economic growth than the price of crude oil alone.
Is Gold Beginning to Look Beyond Inflation?
Until recently, rising oil prices had negatively affected precious metals by increasing inflation expectations, supporting bond yields and strengthening the US dollar.
This mechanism was also visible over the past several days. The yield on two-year US Treasury bonds rose to 4.29%, its highest level in more than a year, as markets began pricing in a greater probability of further monetary tightening by the Federal Reserve.
Fed funds futures currently indicate an approximately 50% probability of an interest-rate increase as early as July, while a full 25-basis-point increase is priced in for September following recent comments from Christopher Waller.
Gold initially behaved in line with this pattern, falling below the psychologically important level of USD 4,000 per ounce. However, as Brent crude continued to rise towards and beyond USD 86 per barrel, gold stopped declining.
Buyers subsequently returned to the market, pushing gold back above USD 4,000 despite continuing concerns about oil prices, bond yields and inflation.
It remains too early to conclude that the recent inverse relationship between oil and gold prices has broken down. Nevertheless, the latest price movements may indicate that markets are beginning to look beyond the inflationary consequences of higher energy prices and are instead focusing on the broader economic risks associated with a prolonged energy shock.
Persistently high diesel, petrol and natural gas prices could restrict economic growth, reduce corporate margins and weaken consumer spending. Should these concerns begin to outweigh expectations of further monetary tightening, gold’s traditional role as a safe-haven asset could once again become the primary factor driving its price.
Three Questions That Will Determine the Market’s Next Direction
For now, oil remains the main factor influencing valuations across multiple asset classes. Whether the current increase develops into another prolonged bull market in energy or proves to be only a temporary consequence of investor positioning will largely depend on the answers to three questions:
Will physical oil supplies from the Persian Gulf remain disrupted?
Will China continue to limit global demand through weak imports?
Will the exceptionally tight refined-fuels market begin to exert an increasingly severe impact on the global economy?
“The market is once again demonstrating that the largest price movements do not always result solely from deteriorating fundamentals. They are often amplified by investor positioning and limited liquidity. Under such conditions, volatility can be significantly greater than the scale of the geopolitical events alone would suggest.
“Diversification therefore remains one of the most effective ways of limiting the impact of sudden changes in market conditions, particularly when uncertainty surrounding inflation, monetary policy and economic growth is increasing simultaneously. Broad exposure to different market segments can reduce the effects of abrupt changes in the macroeconomic environment instead of making investment performance dependent on a single scenario,” says Aleksander Mrózek, Key Client Relationship Manager for the CEE region at Saxo Bank.
