Assessing the Impact of Geopolitical Tensions on Oil Markets
In the wake of recent Iran-Israel attacks, the oil market has experienced a whirlwind of activity, with crude oil prices exhibiting volatility as the week drew to a close. Despite the geopolitical tensions that have intensified in the Middle East, potentially edging towards conflict, oil prices have not sustained their peak levels from earlier in the week.
Market traders, who have been closely monitoring the situation since last year’s military actions by Israel in Gaza, have shown a propensity to hedge their bets on safe-haven assets amidst rising concerns. The initial rally in oil prices was a direct response to these events, with the market trend largely influenced by supply-side speculations and potential conflict scenarios between Iran and Israel.
The bombing of the Iranian embassy in Damascus by Israel was perceived as a significant threat to oil supply, considering Iran’s substantial production capacity and its role within OPEC. However, it was Iran’s retaliatory strikes targeting Israel that truly jolted the oil futures market earlier this week.
Calls for restraint have been issued from the US and its allies, as the global community remains wary of further conflict, especially in light of the ongoing Russia-Ukraine war. With Israel’s subsequent response to Iran’s actions, traders are now contemplating a shift in the dynamic of the region.
The restrained nature of Israel’s attack and Iran’s potential reasons for not escalating further have led some to believe that this exchange may mark an end to immediate hostilities. This sentiment was reflected in the dip in oil prices on Friday, as traders digested the implications of these developments.
What Lies Ahead for Oil Prices?
An analysis of benchmark Brent crude prices reveals two salient points. Firstly, the upward trend in prices remains intact, likely to persist as long as it stays above a certain threshold. Secondly, despite the unfolding events, the market is poised to close in negative territory for the week, signaling that traders are not yet fully pricing in the risk of an all-out war.
The critical juncture for Brent crude will be if it surpasses the $100 per barrel mark—only then might we see a recalibration of risk assessment among traders. The key support and resistance levels are outlined in an accompanying chart by XTB.
