Oil prices showed signs of stabilizing on Friday following a surge earlier in the week sparked by fears of escalating tensions in the Middle East. Investors are closely watching the situation as Israel is expected to respond to an Iranian missile attack, while global equity markets experienced mixed performances. The geopolitical uncertainty has rattled markets, with crude prices rising sharply due to concerns about potential disruptions to oil supplies.
Middle East Crisis Fuels Oil Price Surge
The recent missile attack on Israel has raised alarm about the possibility of a wider regional conflict, particularly involving Iran. Following the barrage of missiles fired at Israel on Tuesday, speculation has grown over how Israel might retaliate. The potential for a broader conflict that could impact oil production and supply chains has driven crude prices up by nearly 10% in recent days.
Both major oil contracts experienced a significant surge on Thursday, with prices jumping around 5%. This came after US President Joe Biden revealed discussions regarding possible Israeli strikes on Iranian oil facilities in response to the missile attacks. The announcement added fuel to investor concerns over supply chain disruptions.
Despite the initial surge, prices later settled back, and by early Asian trading on Friday, oil prices were holding steady with slight gains.
Potential Regional Conflict
As Israel continues its military operations, including air and ground attacks targeting Hezbollah in Lebanon, the situation remains tense. Iran, which has been a key supporter of Hezbollah, has vowed to escalate its response if Israel retaliates further. Supreme Leader Ayatollah Ali Khamenei is expected to offer more insight into Iran’s stance during his upcoming sermon at the weekly Muslim prayers in Tehran, marking his first public address of this nature in nearly five years.
However, Tony Sycamore, an IG market analyst, suggested that targeting Iran’s oil infrastructure might not be the primary course of action. “It is unlikely that Iran’s oil will be directly targeted, as such actions could reignite inflation concerns just as global central banks are working to bring it down,” he explained.
Sycamore speculated that Israeli forces are more likely to focus on critical military installations and weapons factories, similar to the approach taken during a previous escalation in April. “There’s hope that the crisis could eventually return to the shadow conflict that has persisted between Israel and Iran’s proxies since the October 7 Hamas attack,” he added.
However, should the conflict escalate into a direct confrontation, there remains the possibility that Iranian oil exports could be impacted. “If Iranian oil supplies are cut off due to embargos or military action, the potential loss could be partially offset by the return of Libyan oil and increased production from Saudi Arabia, especially as voluntary supply cuts are set to expire on December 1,” Sycamore noted.
Hong Kong Stocks Rally Amid Economic Stimulus Optimism
Amid the geopolitical concerns, equity markets across the globe had a mixed day. In Hong Kong, stocks resumed their rally, driven by optimism over China’s recent economic stimulus efforts. Shares had dipped slightly on Thursday after a strong rally earlier in the week, but Friday saw renewed confidence as investors returned to the market.
China’s stimulus measures, particularly targeting the property sector, have given a significant boost to Hong Kong and mainland China stocks. Over the past week, these markets have surged more than 20% as investors responded positively to the government’s efforts to reignite economic growth.
Tokyo also saw gains as the Nikkei 225 climbed by 0.5%, rounding off a volatile week marked by fluctuations in the yen’s value. The election of Shigeru Ishiba as Japan’s new prime minister initially caused the yen to strengthen due to his past support for interest rate hikes. However, it later weakened after he clarified that the country was not ready for another rate increase this year.
Currency and Market Movements
In currency markets, the dollar was weaker against the yen on Friday, with the exchange rate at 146.50 yen, down from 146.92 on Thursday. The pound and euro also saw modest gains against the dollar, while the euro lost ground slightly against the pound.
In terms of oil prices, West Texas Intermediate crude was up 0.1% at $73.75 per barrel, while Brent North Sea Crude rose by 0.1% to $77.68 per barrel.
Global Markets Mixed Amid US Jobs Data Anticipation
Elsewhere, equity markets in Asia showed mixed performances. Singapore, Seoul, and Manila posted gains, while Sydney, Wellington, Taipei, and Jakarta saw slight declines. Investors are now looking ahead to key US jobs data, which is expected to provide further insight into the Federal Reserve’s upcoming decisions on interest rates. Analysts are particularly focused on whether the central bank will opt for another rate cut this month and, if so, by how much.
