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Singapore - A fall in the risk premium for commodity markets on the death of Osama bin Laden will be short lived, with gold and oil in focus on new concerns that al Qaeda may seek retribution by attacking high-profile targets and fuel unrest in the Middle East.
Soon after US President Barack Obama announced the death of the Saudi-born bin Laden, officials warned of an increased risk of anti-American violence in the wake of the killing of the al-Qaeda leader in a firefight with US forces.
Capturing the mastermind of the September 11, 2001, attacks after a hunt lasting a decade is seen as a political victory for Obama, creating an image of strength.
Prospects that geopolitical risk will decline also may take some of the hefty premium out of oil prices in the short-term.
But a new worry has also emerged - possible unrest in key oil exporting nations such as Saudi Arabia in reaction to the death, and plans to attack high profile targets, which have in the past included oil processing facilities.
"Oil markets are likely to be the most volatile given their higher sensitivity to the tug of war between lower risk overall and the possibility of isolated disturbances in some parts of the Middle East and central Asia," said Mohamed El-Erian, chief executive and co-chief investment officer of PIMCO, the world's largest bond fund manager.
US oil prices fell by as much as 1.7% in the minutes after the news began to percolate across media outlets, while Brent crude dropped 1.2%.
Oil markets have rallied by around a quarter so far this year, supported by civil war in Libya and anti-government protests in the Gulf, independent of any threat posed by al Qaeda.
Ultra-loose monetary policy and demand for inflation-resistant investments including oil, and gold which is trading at record levels, have also underpinned the market and will not evaporate after bin Laden's death.
Spot gold also shed more than $5 in the immediate aftermath, but quickly recovered to levels before the announcement, but remained down 0.5% on the day.
"The threat from terrorism is not over. I suspect that his death will trigger a retaliatory attack in the short term... I think gold's status as a safe haven is intact," said David Thurtell, an analyst at Citigroup.
By 0635 GMT, US gold prices had turned positive, trading $2.40 higher at $1 558.80, having dropped to $1 540.30 soon after the news.
Risk profile changes
Bin Laden's death may have a significant impact on morale and motivation in al-Qaeda, political risk commentators noted. But organizationally, the movement is designed to function without central leadership, and the detrimental effect on its ability to prosecute attacks will be minimal.
"This doesn't end the terrorist threat to the United States, but it's the end of a key chapter to the War of Terror," said Juan Zarate, who served as deputy national security adviser for combating terrorism during George W. Bush's presidency.
"There may be a spike of threats initially, and there are other elements of the al Qaeda network who remain dangerous," said Zarate, now a senior adviser at the Center for Strategic and International Studies.
However, the impact on sentiment of a heightened terror alert or a successfully new attack may be enough to push oil prices the few dollars needed to break their recent two-and-a-half year highs, analysts said.
Short-term reaction
"The markets will always react quickly, and in this case it is someone who has been held out as the father of all terrorism," said commodities and mining analyst David Lennox of Fat Prophets in Sydney.
"But any easing we might see in oil or gold markets, in my view, will be short lived. The longer-term impact will not be substantial."
Investors noted al Qaeda has had years to mount a major attack against an oil terminal or refinery. But security forces in key oil producing nations have so far prevented that.
Most attacks against US interests have been by a Yemeni affiliate, al Qaeda in the Arabian Peninsula (AQAP). The group has claimed responsibility for trying in October to send bombs packed in toner cartridges aboard cargo planes bound for the United States. They were intercepted and failed to detonate.
AQAP also backed an attempt on Christmas Day 2009 by a Nigerian man who tried but failed to detonate a bomb hidden in his underwear while aboard a US commercial flight as it approached Detroit from Amsterdam.
The closest al Qaeda has been to hitting the oil industry was on February 24, 2006, when Saudi forces repelled a suicide attack on the Abqaiq oil-processing center, the world's largest.
"Over the last ten years, al-Qaeda has substantially weakened," said Ben Westmore, commodities economist at the National Australia Bank. "I don't think they will be successful at carrying out an attack on an oil facility."
Soon after US President Barack Obama announced the death of the Saudi-born bin Laden, officials warned of an increased risk of anti-American violence in the wake of the killing of the al-Qaeda leader in a firefight with US forces.
Capturing the mastermind of the September 11, 2001, attacks after a hunt lasting a decade is seen as a political victory for Obama, creating an image of strength.
Prospects that geopolitical risk will decline also may take some of the hefty premium out of oil prices in the short-term.
But a new worry has also emerged - possible unrest in key oil exporting nations such as Saudi Arabia in reaction to the death, and plans to attack high profile targets, which have in the past included oil processing facilities.
"Oil markets are likely to be the most volatile given their higher sensitivity to the tug of war between lower risk overall and the possibility of isolated disturbances in some parts of the Middle East and central Asia," said Mohamed El-Erian, chief executive and co-chief investment officer of PIMCO, the world's largest bond fund manager.
US oil prices fell by as much as 1.7% in the minutes after the news began to percolate across media outlets, while Brent crude dropped 1.2%.
Oil markets have rallied by around a quarter so far this year, supported by civil war in Libya and anti-government protests in the Gulf, independent of any threat posed by al Qaeda.
Ultra-loose monetary policy and demand for inflation-resistant investments including oil, and gold which is trading at record levels, have also underpinned the market and will not evaporate after bin Laden's death.
Spot gold also shed more than $5 in the immediate aftermath, but quickly recovered to levels before the announcement, but remained down 0.5% on the day.
"The threat from terrorism is not over. I suspect that his death will trigger a retaliatory attack in the short term... I think gold's status as a safe haven is intact," said David Thurtell, an analyst at Citigroup.
By 0635 GMT, US gold prices had turned positive, trading $2.40 higher at $1 558.80, having dropped to $1 540.30 soon after the news.
Risk profile changes
Bin Laden's death may have a significant impact on morale and motivation in al-Qaeda, political risk commentators noted. But organizationally, the movement is designed to function without central leadership, and the detrimental effect on its ability to prosecute attacks will be minimal.
"This doesn't end the terrorist threat to the United States, but it's the end of a key chapter to the War of Terror," said Juan Zarate, who served as deputy national security adviser for combating terrorism during George W. Bush's presidency.
"There may be a spike of threats initially, and there are other elements of the al Qaeda network who remain dangerous," said Zarate, now a senior adviser at the Center for Strategic and International Studies.
However, the impact on sentiment of a heightened terror alert or a successfully new attack may be enough to push oil prices the few dollars needed to break their recent two-and-a-half year highs, analysts said.
Short-term reaction
"The markets will always react quickly, and in this case it is someone who has been held out as the father of all terrorism," said commodities and mining analyst David Lennox of Fat Prophets in Sydney.
"But any easing we might see in oil or gold markets, in my view, will be short lived. The longer-term impact will not be substantial."
Investors noted al Qaeda has had years to mount a major attack against an oil terminal or refinery. But security forces in key oil producing nations have so far prevented that.
Most attacks against US interests have been by a Yemeni affiliate, al Qaeda in the Arabian Peninsula (AQAP). The group has claimed responsibility for trying in October to send bombs packed in toner cartridges aboard cargo planes bound for the United States. They were intercepted and failed to detonate.
AQAP also backed an attempt on Christmas Day 2009 by a Nigerian man who tried but failed to detonate a bomb hidden in his underwear while aboard a US commercial flight as it approached Detroit from Amsterdam.
The closest al Qaeda has been to hitting the oil industry was on February 24, 2006, when Saudi forces repelled a suicide attack on the Abqaiq oil-processing center, the world's largest.
"Over the last ten years, al-Qaeda has substantially weakened," said Ben Westmore, commodities economist at the National Australia Bank. "I don't think they will be successful at carrying out an attack on an oil facility."
