Commodity prices surge due to tensions in the Middle East: Highlights of today’s global market developments
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U.S. indices mostly posted gains last week, with the S&P 500 adding 0.4%, the tech-heavy Nasdaq up 1.6%, and the Dow Jones Index down 0.3%.
Wall Street ended last week mostly in the green despite rising U.S. Treasury yields and new data showing the stability of the U.S. labor market.
As such, strong labor market data increases the likelihood that the U.S. Federal Reserve will continue to raise interest rates.
This week, investors will closely monitor US inflation data, as well as the publication of FOMC minutes, which may provide clues about the future actions of the US regulator.
Asian markets ended the week with declines: the broad MSCI AC Asia ex Japan Index of Asian equities (excluding Japan) fell 1.2%, Japan’s Nikkei lost 2.8%, South Korea’s Kospi declined 2.3%, Singapore’s STI fell 1.4% and Hong Kong’s Hang Seng declined 1.8%.
At the moment, Asia-Pacific markets are trading in different directions.
This week, investors in the region will focus on inflation and trade data from China and India.
Shares of green energy companies are on the decline as the transition to clean technology becomes increasingly costly.
Renewable energy companies’ share prices have fallen by an average of 10% over the past quarter.
This is due to investor concerns that the process of transitioning to a green economy will require more time and capital, especially if interest rates remain high.
Some of the sector’s big names are also lowering their revenue forecasts: renewable energy specialist NextEra Energy, for example, has halved its target revenue growth to at least 2026.
Another major player in the field, Enphase Energy, which makes solar inverters, also cut its revenue forecasts for the second consecutive quarter.
Nevertheless, analysts from Bank of America believe that the recent selling of shares of representatives of the green energy sector was excessive and unjustified.
Oil situation and forecasts for the near future
Oil prices are surging due to the military conflict in the Middle East, with Brent futures up 3.7% to $87.68 per barrel and WTI contracts up almost 4% to $86.05 per barrel.
Meanwhile, this rise reversed last week’s downtrend, when Brent crude prices fell by 11% and WTI crude by 8%, due to concerns over high interest rates and their impact on global energy demand.
The intensification of the Middle Eastern crisis was the primary driver of the quick rise in oil prices.
The events of 50 years ago were referred to as the “Doomsday War.” The confrontation thus lasted from October 6 to October 25, 1973, and was fought between a coalition of Arab governments, the primary powers of which were Egypt and Syria, and Israel. The fundamental motives were likewise territorial in nature.
The Arab-Israeli war has lasted many years and has resulted in several major conflicts. During the 1967 Six-Day War, Israel took the Sinai Peninsula down to the Suez Canal, creating a ceasefire zone, as well as about half of the Golan Heights, which were originally totally Syrian, as well as the West Bank and Gaza Strip. During the battle, the United States and Europe backed Israel, while the Soviet Union and certain Arab countries backed the Arab alliance. Officially, the conflict was declared won by Israel. At the end of the fight, Israeli combat troops were 100 kilometers from Cairo, and the Egyptian army’s third division was surrounded.
During this confrontation, the 1973 oil crisis began. It all started on October 17, 1973. On that day, all Arab OPEC member countries, as well as Egypt and Syria, declared that they would not supply oil to the countries (Britain, Canada, Netherlands, USA, Japan) that had supported Israel during the Doomsday War in its conflict with Syria and Egypt. This applied primarily to the US and its allies in Western Europe. Over the next year, the price of oil rose from $3 to $12/bbl. In March 1974, the embargo was canceled. At the same time, the USSR did not join the embargo, which contributed to the growth of oil supplies from the USSR to the West at that time and entrenched ties that had been broken after the invasion of Ukraine began.
Of course, now we see that the situation is somewhat different, although many Muslim countries have expressed support for Palestine and Hamas. Saudi Arabia stands out, however, as it has condemned the actions of Hamas, and without Saudi Arabia, such an embargo would simply not be possible. At the same time, the risks of supply reduction, as well as the probability of further escalation, are already supporting oil quotations.
Technical forecast
The ratio of buyers and sellers according to ActivTrades broker data in CFD on US Crude Oil has a preponderance of the former: 73% of buyers against 27% of sellers, which indicates the likelihood of a decline in oil prices.
The price was able to return above the resistance level in the range of 85.50 – 86.05 and is currently testing the next resistance level in the range of 87.45 – 89.60, where the 50-day moving average also passes. The RSI indicator has almost reached the overbought level, although it also diverged.
We can talk about the continuation of the upward trend if the price manages to close above 89.60 and the 50-day moving average, which opens the way to the next resistance in the range of 93.20 – 95.20. If the resistance level of 87.45 – 89.60 holds, we can expect the continuation of the decline in oil quotes with the first target in the range of 85.50 – 86.05.
In summary, the oil market is facing both geopolitical and technical challenges, and its future trajectory will be shaped by a complex interplay of factors, including the ongoing conflict in the Middle East and market sentiment. Investors and analysts will closely monitor developments in the region and the performance of commodity prices in the coming days and weeks.