HomeFutures and CommoditiesMarket Volatility and Surging Oil Prices Amidst Unrest in the Middle East

Market Volatility and Surging Oil Prices Amidst Unrest in the Middle East

Ongoing Violence in Middle East Sparks Concerns of Wider Conflict

Hamas’ Assault on Israel Drives Oil Prices Higher

In the wake of Hamas’ recent assault on Israel, oil prices have surged as markets factor in the potential for a broader conflict in the Middle East. This comes just one day after Israel retaliated by launching a fierce attack on the Gaza Strip, marking one of the bloodiest incidents in its history.

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Fears of Escalation

The assault by Hamas fighters resulted in the deaths of 700 Israelis and the abduction of dozens more. This incursion into Israeli territory is considered the deadliest since the Yom Kippur war 50 years ago when Egypt and Syria launched attacks.

Market Reaction

  • Oil prices have risen by $3 per barrel on Monday, with Brent crude trading at $87.50 per barrel, representing a 3% increase for the day.
  • West Texas Intermediate crude stands at $86.84 per barrel, up 3.7%. Both benchmarks experienced a surge of over $4 per barrel earlier before slightly easing.
  • The safe-haven currencies, such as the US dollar and Japanese yen, have seen modest gains. The USD/JPY exchange rate is currently at 106.32, slightly firmer.
  • Gold prices have also climbed, with an increase of 1.2% to $1853.09 per ounce.

Expert Analysis

Michael Hewson, Chief Market Analyst at CMC Markets in London, shared his insights on the situation: “The events over the weekend, including the Hamas atrocities and Israel’s subsequent declaration of war, have prompted investors to seek refuge in the US dollar, gold, and bonds. Escalation risks are now at the forefront of concerns.”

Alvin Tan, Head of Asia FX Strategy at RBS Capital Markets, highlighted the potential involvement of Iran: “While the current conflict does not directly impact global oil supply, there is a fear that Iran may become entangled. Despite US Secretary of State Blinken stating no direct evidence of Iranian involvement, the longstanding relationship between Iran and Hamas raises concerns.”

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Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank in Geneva, emphasized the geopolitical differences compared to past conflicts: “This war differs from the one in 1973 due to the unique political and geopolitical landscape. Arabic countries are not united in attacking Israel, and OPEC nations possess spare capacity that they willingly restrict to maintain oil prices above $80 per barrel. Additionally, the US could tap into its strategic oil reserves to mitigate potential price shocks. However, the risk of retaliation against Tehran remains a significant upside factor for oil prices.”

As the situation continues to unfold, it is crucial to monitor developments closely. While the potential for a substantial surge in oil prices exists, it is essential to avoid speculative conclusions at this time.

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