Investors bail out of travel stocks and into commodities as conflict jitters grow
The market’s energy sector cushioned losses elsewhere, storming 5.5 per cent higher as the spot price of Brent crude oil leapt to as high as $US82.37 a barrel.
Investors have dumped travel stocks in favour of gold and energy shares as the escalating conflict in the Middle East rattles financial markets, sparking a rush into safer investments.
Oil prices surged as much as 13 per cent on Monday on fears of a long closure of the Strait of Hormuz, the key waterway between Iran and Oman that handles about 20 per cent of the world’s oil and gas.
Gold added up to 2.2 per cent, topping $US5393 an ounce and living up to its reputation as a safe haven in times of geopolitical uncertainty.
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By continuing you agree to our Terms and Privacy Policy.The resulting push into the commodities cushioned losses on the Australian Securities Exchange, where the S&P-ASX200 index gained 2.3 points to a record closing high of 9200.9 points.
Investors have been on tenterhooks since the US and Israel launched attacks on Iran on Saturday, killing the Islamic republic’s leader Ayatollah Ali Khamenei and triggering retaliatory bombardments.
The barometer’s energy sub-index stormed 5.5 per cent higher as the spot price of Brent crude oil rose to a day’s peak of $US82.37 a barrel, with Karoon Energy surging 15.2 per cent to $1.78, Woodside Energy adding 6.8 per cent to $30.24 and Santos gaining 6.7 per cent to $7.21.
A slew of gold miners also recorded big gains, with Resolute Mining leaping 10.4 per cent to $1.64, Genesis Mining rising 8.5 per cent to $8.06 and Ora Banda adding 7.7 per cent to $1.39.
Defence stocks were also amongst the day’s winners. DroneShield jumped 6.6 per cent to $3.86 and naval shipbuilder Austal added 3.7 per cent to $5.36.
Travel and airline stocks were hammered lower as Iran’s retaliatory missile strikes across the Persian Gulf forced the cancellation of flights to and from Middle East destinations.
Qantas clawed back half of its early losses to close 5.4 per cent lower at $9.41, while travel agencies Flight Centre and Web Travel fell 5.7 per cent to $12.17 and 6.5 per cent to $3.02 respectively.
While the Strait of Hormuz is all but closed, analysts say investors are taking a wait-and-see attitude and hoping that diplomacy will still avert a more serious conflict that would hurt global trade.
“The deepness of the market’s reaction will be almost exclusively a function of how long the conflict lasts,” Stephen Miller, a market strategist at GFSM Funds Management, said.
So, in a worst-case scenario Australia could run out of petrol in less than a month.
“But for now it’s all highly speculative, nobody really knows where this conflict goes,” he said.
“(US President Donald) Trump might think the Iranian regime will collapse and it will be a swift success, or, on the other hand, the US could get horribly mired in another Middle East conflict.
“For Australia, the fallout from the conflict might not be as removed as elsewhere as we’re a long way removed from the conflict, we have a lot of commodities that might rise as a consequence of this and the Aussie dollar will probably fall a little bit.
“For equities, it looks a net negative, but for gold, defence, and energy stocks it’s a positive.”
But severe disruption to the oil trade could add 40¢ a litre to Australian fuel prices, hurting consumer confidence and fuelling inflation.
Kevin Morrison, an analyst with the Institute for Energy Economics and Financial Analysis, added that Australia risked running out of oil if the Middle East conflict dragged on.
“The International Energy Agency requires its members such as Australia to hold 90 days’ worth of imports as inventories, but the country only has 50 days of import cover, and it is even thinner for petrol and diesel where import cover is around 25 days,” Mr Morrison said.
“So, in a worst-case scenario Australia could run out of petrol in less than a month.”
Global energy consultancy Wood Mackenzie said “higher oil and gas prices are certain” as the closure of the Strait of Hormuz threatened to disrupt 15 per cent of global oil supply and 20 per cent of the world’s LNG supply.
The conflict created a dual supply shock, it said, as not only were current exports through the Strait halted, but increased production from OPEC+ was inaccessible while the waterway remained closed.
Wood Mackenzie suggested that in the most optimistic scenario, it would be at least a few weeks before oil exports returned to normal.
“During that time, oil prices are heavily risked to the upside,” it said.
“The most recent comparison is during the early days of the Russia/Ukraine conflict, when the fear of loss of Russian supplies drove the oil price to over $US125 barrel.”
