Iran’s recent attack on Israel has sent shockwaves through the global oil market, with prices experiencing a notable decline as market participants adjust their risk premiums. The attack, involving over 300 missiles and drones, marked the first direct assault on Israel from another state in more than three decades.
While concerns about a broader regional conflict persist, the limited damage caused by the attack has led to a reconsideration of risk expectations.
Oil Price Reaction
Oil prices, which had been steadily rising in anticipation of Iran’s retaliatory attack on Israel, experienced a sudden dip on account of the limited damage reported by the Israeli government. Brent futures for June delivery fell by 0.5% to $89.95 a barrel while West Texas Intermediate (WTI) futures for May delivery were down by 0.6% at $85.14 a barrel.
Analysts have attributed this decline to the fact that the market had largely priced in the possibility of an attack in the days leading up to the event. Moreover, the absence of casualties and significant damage suggests that Israel’s response may be measured, further easing market-related concerns.
Supply Risks and Market Concerns
Despite the immediate dip in prices, the ongoing conflict raises significant supply risks, particularly considering Iran’s status as a major oil producer within OPEC (Organization of the Petroleum Exporting Countries). Analysts warn of potential strictly enforced oil sanctions and the possibility of Israel targeting Iran’s energy infrastructure in response.
However, the market also factors in the potential for the U.S.A. to release crude oil from its strategic reserves and OPEC’s spare production capacity to mitigate supply disruptions.
Gold Price Surge
Gold prices surged following Iran’s attack on Israel, with investors flocking to safe-haven assets amidst escalating geopolitical tensions. Spot gold rose by 0.6% to $2,356.69 per ounce, nearing its all-time high of $2,431.29 reached on Friday. The prospects of Fed interest rate easing in the second half of the year, combined with geopolitical risks, have improved gold’s appeal as a financial asset in 2024.
Israel-Iran’s Broader Impact
The broader impact of the Iran-Israel conflict extends beyond oil and gold markets, influencing global risk sentiment and economic outlook.
Concerns about potential disruptions to trade and travel as well as the impact on inflation and central bank decisions weigh heavily on market participants.
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