Oil Prices Drop as Investors Realize It’s Not a Safe Haven Amidst Israel-Hamas Conflict
Rising Crude Prices
Investors who turned to oil as a hedge against the Israel-Hamas war are discovering that it may not be the safe haven they anticipated. Crude prices fell by another 2% on Tuesday, following a 3% decline in the previous session, erasing a significant portion of the gains made in the past two weeks due to the conflict in the Middle East.
WTI and Brent Crude
The price of New York-traded WTI crude for December delivery was at $83.69, down $1.80, or 2.1%, by 13:30 US Eastern Time (17:30 Greenwich Mean Time) on Tuesday. The US crude benchmark had risen 2% the previous week and around 6% the week before. The session low for WTI was $82.97, close to the two-month low of $81.50 reached on October 6, just before the Gaza fighting began. UK-origin crude for December delivery, known as Brent, traded at $88.07, down $1.76, or nearly 2%.
Reasons Behind the Rally and Retreat
The recent rally in oil prices was driven by global concern over the death toll resulting from Israel’s response to the October 7 attacks by Hamas. There were also fears of a potential spillover effect on neighboring countries, including major oil producers such as Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait. However, the market’s retreat is now being attributed to diplomatic efforts by the United States and other world powers to delay a ground assault on Gaza, as they negotiate the release of Israeli hostages held by the Palestinian militant group.
Impact of Europe’s Economic Data
In addition to the war-related factors, dire economic data from Europe further contributed to the bearish mood in the oil market. Germany’s readings suggest a recession is underway, and British businesses reported another decline in activity. These factors highlight the risks of a recession ahead of the Bank of England’s interest rate decision next week.
Distinguishing Oil from Gold
Investors are realizing that oil and gold cannot be equated as hedges in the same way. While gold is often seen as insurance against economic and political troubles, oil derives its value from consumption and demand. The crisis in the Middle East has not had a direct impact on the oil trade, leading to a correction in crude prices after the recent gains.
Gold as an Alternative
Gold prices reached three-month highs as investors sought a hedge against the war, with New York-traded gold breaching $2,000 an ounce. Although gold has since eased from those highs, it remains in a bull market according to technical charts.
(This article was rewritten by a human writer. No AI or specific human authors were involved in the process.)
