Political risks boost oil prices

The price of oil jumped this week on rising tensions in the Middle East, which also lent some support to the gold price. In contrast, the prices of industrial metals fell, after strong gains a week earlier. Indeed, profit-taking probably explains some of the poor performance. However, China’s October trade data also showed a sharp drop in commodity imports. That said, we think the week-long holiday at the start of the month distorted the data and imports may rebound in November. Looking ahead, the metals markets will closely watch China’s industrial output and investment data on Tuesday for a clearer picture of activity last month. Efforts to reduce pollution around the Party Congress and lower investment spending will probably mean that activity slowed in October. Elsewhere, Venezuela continues to wobble on the edge of default. For now, the implications for the country’s oil production are unclear although a default may serve to support prices at these higher levels.