Oil prices advanced as Saudi Arabia's shutdown of a key crude pipeline fueled supply tightness concerns, while signs emerged that the US may still seek a diplomatic resolution with Iran. Meanwhile, copper and gold both declined as traders intensified wagers on interest rate hikes.
Brent crude futures climbed 1% to settle below $106 per barrel after earlier surging as much as 5%, while WTI traded near $101. The initial spike followed the suspension of Saudi Arabia's east-west pipeline, which ships approximately 7 million barrels daily to the Red Sea port of Yanbu. The conduit has become a vital alternative route bypassing the Strait of Hormuz since the Iran war disrupted Persian Gulf exports.
Prices pared gains around midday in New York after President Donald Trump posted a series of social media messages suggesting progress in both the Iran conflict and the Russia-Ukraine war. Trump stated that Kyiv and Moscow had agreed not to strike energy targets and claimed Iran is "very eager to reach a deal soon." He also indicated US openness to engaging with Tehran. Iranian state media reported that Iran denied Trump's claims.
Ukrainian President Volodymyr Zelensky said Kyiv would pause attacks on Russian energy infrastructure if partners could guarantee that Moscow genuinely halts further strikes on Ukraine's critical facilities. Despite this, traders used the diplomatic signals to unwind increasingly crowded long positions. Crude's 9-day relative strength index had been in overbought territory for the past week, suggesting downside potential. Kpler noted that trend-following commodity trading advisors had reached 100% maximum long positioning in Brent, indicating limited room for additional buying.
Investors also weighed conflicting reports on when the Saudi pipeline might resume operations. The Associated Press cited two regional officials saying the shutdown could last weeks. US Energy Secretary Chris Wright said Monday he expects the pipeline to return "very soon." Saudi Aramco did not respond to inquiries about the duration of the disruption. Market impact will depend on how much crude can be drawn from Yanbu inventories, repair timelines, and how much oil can be redirected through the Strait of Hormuz.
Wright expressed confidence that Hormuz crude volumes would increase in coming weeks, noting over 12 million barrels transited the chokepoint last night. Suvro Sarkar, head of energy research at DBS Bank, said Yanbu inventories could sustain exports for 5 to 7 days, but a longer outage would create a "massive shock." He suggested short-term prices could test $120 per barrel until repair clarity emerges. WTI October futures rose 1.3% to settle at $101.39 per barrel, while Brent November futures gained 1% to close at $105.68.
Copper declined toward the $14,000 per ton threshold as traders ramped up US rate hike bets and a key spread loosened after exchange warehouse inventories increased. London Metal Exchange data showed copper stockpiles rose by 8,425 tons, pressuring prices. The LME copper market had tightened significantly in August as inventories dwindled. Prices had hit record highs amid concerns that global supply was being diverted to the US ahead of potential tariffs, but the spread between London benchmark and COMEX prices has narrowed in recent weeks, reducing the incentive to ship metal stateside and easing worries about further LME outflows.
On Monday, the key spread also indicated easing supply tightness in the LME warehouse network. Following the inventory build, cash copper traded at a $45 per ton discount to three-month contracts, compared with a $545 premium in August that reflected acute scarcity. Copper and other metals faced headwinds overall as traders boosted expectations for imminent Federal Reserve rate increases. "With speculative long positions reduced and spot supply tightness easing, copper may continue to consolidate around current levels until dip-buying visibly returns or new macro or fundamental catalysts provide clearer direction," analysts at Sucden Financial Ltd wrote in a note.
Rate hike expectations have strengthened ahead of this week's Fed policy meeting. Monetary tightening typically weighs on industrial metals by raising borrowing costs for manufacturers and consumers. LME copper slipped 1.7% to $14,001 per ton. LME aluminum fell 0.3% to $3,244.50, nickel dropped 0.8% to $16,334, zinc declined 2.3% to $3,793.50, tin lost 2.8% to $51,879, and lead edged down 0.6% to $1,881.50.
Gold declined as persistent disruption to Middle East oil supply reinforced expectations that the Fed will raise rates multiple times this year. Bullion fell as much as 2.2% to break below $4,300 per ounce. Benchmark crude futures briefly traded above $109 per barrel, intensifying inflation concerns ahead of the Fed's rate decision this week. US Treasury yields and the dollar index both moved higher, pressuring gold. "The market has largely priced in a rate hike this week, but if the Fed does deliver, gold will face further headwinds," said Tang Yuxuan, Asia rates and FX strategist at JPMorgan Private Bank.
"In contrast, if the Fed holds steady, regardless of hawkish or dovish language, it could push real yields lower and reignite concerns about policy credibility and currency depreciation, which would be positive for gold." Tang noted that gold should remain well-supported over the medium term even with a rate hike. Monetary tightening "would add further strain to parts of the economy already burdened by high energy costs and could exacerbate K-shaped growth divergence," raising recession risks that would benefit bullion. Spot gold fell 1.2% to $4,298.43 per ounce as of 4:57 pm in New York. Spot silver declined 2% to $63.2309 per ounce.