Key Points
-After a sharp dip last week, oil (WTI) surges back above $82.
-A surge in safe-haven flows into the US Dollar and Japanese Yen causes a rise in those currencies.
-With US Navy ships being sent to the area, tensions are likely to increase further, which could lead to additional increases in oil prices.
ISRAEL UPDATE
Over the weekend, fighting broke out in the Middle East as a result of an attack on Israel by the Palestinian Islamist militant group Hamas, which has so far claimed over 700 lives. In retaliation, Israel struck Hamas sites in the Gaza Strip, resulting in over 400 reported fatalities. Despite widespread censure, the long-running feud between the two shows little signs of ending, leaving markets open to additional spikes in volatility.
The Middle East turmoil has caused gold to rise dramatically, adding to Friday’s post-NFP gain. The action late last week prevented the precious metal from hitting support just above $1,800/oz and broke a short-term bearish pennant formation. Even though the headline NFP number was somewhat higher than anticipated, the Fed will have been pleased with a slight decline in average hourly wages as they continue their fight against inflation.
Following a brief reversal, the Pound Sterling (GBP) fell on Monday as the Israel-Hamas confrontation that erupted over the weekend reinforced the risk-aversion theme. The Federal Reserve (Fed) is anticipated to consider one more interest rate hike, while the Bank of England (BoE) may decide to leave interest rates unchanged to allay concerns about a recession in the UK economy. As a result, the GBP/USD pair fell substantially.
WTI OIL – MARKET DRIVERS
Like all assets, the price of WTI Oil is primarily influenced by supply and demand. As a result, higher demand might be driven by worldwide growth and vice versa for weak global growth. War, sanctions, and political unrest all have the potential to alter supply and raise costs. The decisions made by OPEC, a large collection of nations that produce oil, are another important factor in price. Since WTI Crude Oil is mostly traded in US Dollars, the value of the US Dollar has an impact on the price of the commodity. A weaker US Dollar might make oil more inexpensive, and vice versa.
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