Oil prices rallied while the US dollar and yen advanced yesterday after Hamas launched a shock attack on Israel at the weekend, sparking fresh concerns about tensions in the Middle East.
The crisis fanned concerns about supplies of crude oil from the region as supply worries are already high, owing largely to Saudi Arabian and Russian output cuts.
Oil prices had eased back from highs of the mid-US$90 range last month in the past few days, falling sharply last week. Early yesterday, US benchmark crude oil was up US$2.70 at US$85.48 per barrel in electronic trading on the New York Mercantile Exchange. It picked up US$0.48 on Friday.
Photo: Reuters
Brent crude, the pricing basis for international trading, advanced US$2.42 per barrel to US$87.00 per barrel.
Rising oil prices have also renewed fears about the impact on inflation, with energy costs a key driver of spiking prices, giving a fresh headache to central banks as they try to ease up on interest rate hikes to avoid recessions.
CONTAINED OR SPREADS
“Key for markets is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia,” Australia & New Zealand Banking Group commodity strategists Brian Martin and Daniel Hynes said. “Initially at least, it seems markets will assume the situation will remain limited in scope, duration, and oil-price consequences. But higher volatility can be expected.”
However, SPI Asset Management managing partner Stephen Innes said that: “historical analysis suggests that oil prices tend to experience sustained gains after the Middle East crises.”
“Meanwhile, stocks tend to eventually recover and trend higher after an initial period of volatility. Safe-haven assets like gold and Treasuries, which initially see gains during such crises, tend to fade from their initial price spikes as the situation stabilizes,” he added.
A decidedly risk-off mood also saw investors push into the safety of the US dollar, which was up against the British pound and euro, as well as the Australian and New Zealand dollars.
The yen, considered one of the safest currencies, strengthened against the greenback, although it still remains locked around 11-month lows.
Gold, another key haven, gained around 1 percent.
Equity markets were mixed, with Shanghai dropping on its first day back after a week-long holiday as investors continue to fret over the stuttering Chinese economy.
There were also losses in Mumbai, Singapore, Manila, Bangkok and Wellington, although Hong Kong rose in shortened trade, having been closed in the morning owing to a typhoon.
Sydney and Jakarta eked out gains, while Taipei and Tokyo were closed for holidays.
London edged up, while Paris and Frankfurt were lower. The futures for the S&P 500 and the Dow also lost ground yesterday.
Additional reporting by AP
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