Middle East conflict set to push oil prices higher as traders brace for market volatility
Worries that a rising oil price will push global inflation higher are in focus, ahead of what’s expected to be a volatile day on the S&P/ASX 200.
Investors are braced for a jump in benchmark oil prices on Monday as worries around renewed inflation in the cost of energy threaten to slow the global economy.
The spiralling Middle East conflict is also tipped to spark a sell-off in global shares and on the S&P/ASX 200 as investors head into the safety of government bonds, commodities, and cash.
“Markets are yet to fully respond to the evolving situation in the Middle East. Futures suggest haven flows will pick up on the open, with the US dollar and key commodities, including oil, expected to extend the gains recorded on Friday,” said Wespac’s economist Pat Bustamante.
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Oil tipped to climb
Benchmark brent oil futures rose 2.5 per cent to a seven-month high of $US72.48 on Friday before Israel and US attacked Iran, with traders expecting another climb at the market open.
On Sunday, OPEC+, the association of oil-producing nations, said it would increase total global supply by 260,000 barrels a day in April in an attempt to limit any disruption from the war in Iran.
Tony Sycamore an analyst at IG Markets, said the conflict is already likely to add 15 cents a litre to unleaded petrol prices at the bowser in Australia. The strategist added that IG Markets’ oil trading futures market, which operates on the weekend, had seen oil futures jump 15.1 per cent in the 12 hours since the attack.
“Ahead of the opening this morning, volatility on IG Weekend Markets has moved significantly higher over the past 12 hours, reflecting the escalation in the US-Israel-Iran conflict, including Iran’s restrictions on the Strait of Hormuz, vessel attacks, shipping suspensions, and retaliatory strikes across the region,” Mr Sycamore said.
“This has driven a massive rally in crude oil prices on IG Weekend Markets with risks of prolonged supply disruptions potentially pushing prices through last year’s $80.77 high into triple digits.”
Benchmark global oil futures markets will not open to later on Monday morning in Australia, with significant uncertainty as to the price moves. IG’s market indicator is not necessarily predictive of actual outcomes.
The Australian dollar is also expected to come under selling pressure versus the US dollar as traders dump smaller currencies in favour of perceived safety.
Gold will also be in focus after it jumped back above $US5,200 on Friday.
