Bullish Crude Oil Traders Anticipating Reimposition of Sanctions on Iran

July Comex High Grade Copper futures finished slightly better on Monday on expectations of higher demand from top consumer China after a report showed a resilient economy despite a modest monthly decline in manufacturing activity.

Growth in China’s vast manufacturing sector eased only slightly in April in a sign of broad economic resilience, though slowing export orders pointed to risks to the outlook amid concerns over a U.S. – China trade war.

Additionally, Chile’s Escondida, the world’s largest copper mine, said on Thursday early contract talks with its workers’ union ended without an agreement, setting the stage for legally scheduled negotiations to begin in June.

Gold

June Comex Gold futures dropped sharply on Monday, hitting a six-week low in the process. The selling was fueled by a rise in the U.S. Dollar to a 3 ½-month high. Trading was likely limited because of the Labor Day holiday in Asia.

Gold is also being pressured by increased demand for higher risk assets, rising Treasury yields and expectations of additional Fed rate hikes later in the year.

Federal Reserve officials are scheduled to convene on Tuesday and Wednesday for a regular policy meeting. The central bank is widely expected to stand pat on policy and investors will be looking for hawkish language in its monetary policy statement that hints at additional rate hikes later this year. At this time, investors are pricing in a rate hike in June and September.

The easing of geopolitical tensions also put pressure on gold. Investors are easing their concerns over a potential trade war between the United States and China as well as worries over potential military action involving North Korea now that the rogue nation has agreed to dismantle its nuclear testing facility.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil settled sharply higher on Monday, driven by bullish comments from Israeli Prime Minister Benjamin Netanyahu. He said Israel has evidence that Iran lied about its nuclear program after signing the 2015 agreement with global powers. Iran dismissed Netanyahu’s accusations, calling them “propaganda”. He went on to say the he was sure U.S. President Donald Trump would do “do the right thing” in reviewing Iran’s nuclear deal with western powers.

Trump has until May 12 to decide whether to restore sanctions on key oil-producer Iran that were lifted after the international agreement.

Traders fear that new sanctions will lead to a supply disruption that could lead to higher prices.