Home ยป The price of oil increases by 4% due to concerns over escalating tensions following an attack on Israel.

The price of oil increases by 4% due to concerns over escalating tensions following an attack on Israel.

Following the declaration of war by Israel in response to deadly attacks by Hamas from the Gaza Strip, global stock markets mostly declined while oil prices experienced a significant increase.

On Monday, the cost of one barrel of West Texas Intermediate oil rose by nearly $5, reaching a value exceeding $86 US per barrel. This significant increase was primarily driven by apprehensions that the volatile circumstances could potentially involve additional countries in the area.

Israel produces a small amount of oil compared to other countries in the Middle East. However, neighboring nations in the region play a crucial role as major oil suppliers. If these countries become engaged in the conflict, it would have a significant impact on global oil supplies.

Warren Patterson, the head of commodities strategy at Dutch bank ING, stated that although the oil fundamentals have remained unchanged following the attacks, this does not guarantee that they will stay the same. There are allegations suggesting that Iran assisted Hamas in orchestrating the attacks and gave them permission. If these allegations are proven true, it is possible that the United States, which is an ally of Israel, may adopt a more stringent approach towards Iran. This could potentially result in a decrease in oil supply.

The Toronto Stock Exchange was closed for the Thanksgiving holiday on Monday, and most major Asian markets are also closed. But the New York Stock Exchange was open and stocks mostly slumped to start with and rebounding somewhat later in the day. The S&P 500 was 0.6 per cent higher in its first trading since the attack. Trading has been unsteady, with the benchmark index falling as much as 0.6 per cent earlier.

Traders assess geopolitical risk

The stocks of companies involved in the production of weapons and military equipment experienced a significant increase: Northrop Grumman and RTX saw a rise of 3.6 percent each, whereas Lockheed Martin’s value soared by 4.6 percent.

The stocks of travel and leisure businesses, including airlines and cruise ships, experienced a significant decline. In response to travel advisories issued by the U.S. State Department due to concerns about terrorism and civil unrest, American, United, and Delta airlines halted their services to Israel. American Airlines saw a decrease of 5.6%, while Norwegian Cruise Line witnessed a 4.5% drop in their stocks.

The primary stock index in Tel Aviv experienced a decline of 0.4 percent. After the attacks, it concluded with a significant drop of 6.5 percent on Sunday. Israel’s Central Bank announced on Monday that it intends to sell a maximum of $30 billion US in foreign currency to support the shekel, which has reached its lowest point in nearly 8 years.

Edward Moya, an analyst with foreign exchange firm Oanda, said: “It was supposed to be a quiet Monday morning given the Columbus Day holiday,” but following the unexpected Hamas attack, “traders are struggling to assess how this latest geopolitical risk will unfold and potentially impact inflation and growth trends.”

Source: cbc.ca