Oil Prices Jump As Hamas Attack On Israel Fuels Supply Fears

Oil prices rose on Monday, while the dollar and yen rose after Hamas conducted a surprise strike on Israel over the weekend, raising new concerns about Middle East hostilities.

The situation heightened fears about petroleum supplies from the region at a time when supply concerns were already high due to Saudi Arabia and Russia’s output restrictions.

It has also reignited concerns about the impact on inflation, with energy costs a main driver of rising prices, providing central banks a new difficulty as they try to ease off on interest rate hikes in order to avoid recessions.

The surprise attack and Israel’s declaration of war in response to it have left more than 1,000 dead and raised concerns that a potential broadening of the conflict could draw in the United States and Iran.

“Key for markets is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia,” said ANZ Group’s Brian Martin and Daniel Hynes.

“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.”

Both main contracts surged more than five percent in early Asian business before easing back as the day wore on.

However, SPI Asset Management’s Stephen Innes warned: “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 Treasurys, which initially see gains during such crises, tend to fade from their initial price spikes as the situation stabilises.

“But with Middle East analysts considering this to be a pivotal moment for Israel, the view looks incendiary in any current scenario.”

A decidedly risk-off mood also saw investors push into the safety of the dollar, which was up against the pound and euro, as well as the Australian and New Zealand dollars.

The yen, considered one of the safest currencies, strengthened against the greenback, though it still remains locked around 11-month lows.

Gold, another key haven, gained around one percent.

Equity markets were uneven, with Shanghai dipping on its first day back after a week off as investors fretted about China’s slowing economy.

Mumbai, Singapore, Manila, Bangkok, and Wellington all suffered losses, however Hong Kong climbed in limited trade after being closed in the morning due to a typhoon.

Sydney and Jakarta eked out gains. Tokyo was closed for a holiday.

London edged up while Paris and Frankfurt were lower.

Despite a rise on Wall Street, traders welcomed data indicating a forecast-busting increase in new jobs but slower pay growth.

The “Goldilocks” results — neither too robust nor too weak — raised hopes that the world’s largest economy will avoid a recession even as the Federal Reserve keeps interest rates high.

Still, there are fears that the bank could raise rates again before the end of the year, as authorities are determined to get inflation under control and keep it at the two percent objective.

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