Crude Oil Prices Drop as Gold Increases on Israel-Iran War
Oil prices have declined, while gold has ascended amidst the ongoing Israel-Iran strikes, now extending into their fourth day.
The 2025 budget may face jeopardy should oil prices plummet below the budgeted benchmark of $75 per barrel. Current prices is still at $76.53 per barrel.
On Monday, oil prices receded as fears of a broader Middle Eastern conflict abated, despite Israel and Iran exchanging missile attacks for a fourth consecutive day and issuing further threats.
Gold prices have surged towards a record high, driven by a flight to safe havens, yet equity markets displayed mixed performances amid optimism that the conflict would not escalate.
Investors are preparing for pivotal central bank meetings this week, particularly focusing on the US Federal Reserve and the Bank of Japan, alongside discussions with Washington aimed at averting Donald Trump’s exorbitant tariffs.
Israel’s unexpected assault on Iranian military and nuclear sites on Friday, resulting in the deaths of top commanders and scientists, initially propelled crude prices upwards by as much as 13 percent due to concerns over supply interruptions from the region.
However, apprehensions about the conflict’s expansion appear to have waned, with prices retreating in Asian markets.
Analysts cautioned that the price surge might reignite global inflation, undermining prolonged governmental and central bank efforts to control it, and intensifying fears about its repercussions on already vulnerable economies.
“The repercussions of elevated energy prices are that they will decelerate growth and elevate headline inflation,” stated Tony Sycamore, a market analyst at IG.
“Although central banks might prefer to disregard a temporary energy price spike, sustained high prices could permeate core inflation as businesses transfer increased transport and production costs.
“This scenario would impede central banks’ capacity to reduce interest rates to mitigate the anticipated growth deceleration stemming from President Trump’s tariffs, presenting another factor for the Fed to contemplate during its interest rate discussions this week,” he said.
Both principal oil contracts have declined, relinquishing earlier gains in Asian trading.
– Focus on Fed and BoJ
“Oil markets remain generously supplied, with OPEC intent on boosting production amid subdued demand. US production growth has decelerated but might rebound in response to persistently high prices,” remarked Allen Good, Morningstar’s director of equity research.
“Simultaneously, a larger conflict seems improbable. The Trump administration has reaffirmed its commitment to dialogue with Iran. Ultimately, fundamentals will dictate pricing, and substantial price increases appear unwarranted. Although the global risk premium might rise, keeping prices moderately elevated compared to much of the year’s norms.”
Tokyo closed 1.3 percent higher, buoyed by a weaker yen, while Hong Kong reversed initial losses, with Shanghai, Seoul, and Wellington also advancing. Taipei, Jakarta, Bangkok, and Manila retreated, while Sydney remained flat. London, Paris, and Frankfurt all registered gains.
Gold, a preferred asset during periods of uncertainty and volatility, rose to approximately $3,450 per ounce, nearing its all-time high of $3,500. There was minimal reaction to data indicating slower-than-anticipated growth in China’s factory output last month, as trade war pressures mounted, while retail sales exceeded forecasts.
The Group of Seven summit in the Canadian Rockies, commencing on Sunday, is also under scrutiny, with discussions on the Middle East crisis and trade following Trump’s tariff blitz. Investors are also anticipating bank policy meetings, with the Fed and BoJ being particularly prominent. Both are expected to maintain their current stance, but traders will closely monitor their statements for insights into future interest rate plans, as US officials face pressure from Trump to implement cuts.
The Fed meeting “will naturally receive the most market attention,” noted Chris Weston at Pepperstone. “The Fed should remain sufficiently constrained by numerous uncertainties to offer anything truly market-moving, and the statement should emphasize that policy is currently well-positioned.”
In corporate developments, Nippon Steel surged more than three percent after Trump signed an executive order on Friday, approving its $14.9 billion merger with US Steel, concluding a protracted saga.
– Key figures at approximately 0820 GMT –
West Texas Intermediate: DOWN 0.2 percent at $72.82 per barrel
Brent North Sea Crude: DOWN 0.4 percent at $73.95 per barrel
Tokyo – Nikkei 225: UP 1.3 percent at 38,311.33 (close)
Hong Kong – Hang Seng Index: UP 0.7 percent at 24,060.99 (close)
Shanghai – Composite: UP 0.4 percent at 3,388.73 (close)
London – FTSE 100: UP 0.3 percent at 8,874.0
Euro/dollar: UP at $1.1581 from $1.1540 on Friday
Pound/dollar: UP at $1.3583 from $1.3560
Dollar/yen: UP at 144.26 yen from 144.04 yen
Euro/pound: UP at 85.26 pence from 85.11 pence
New York – Dow: DOWN 1.8 percent at 42,197.79 (close)
