World oil prices sank Monday as traders hoped a region-wide conflict could still be avoided as Israel said its forces killed dozens of Hamas militants in clashes in Gaza.
Equities rose in Europe and on Wall Street as the sliding oil market lifted hopes that the US Federal Reserve and the Bank of England will opt for no-change when they announce their latest interest-rate decisions on Wednesday and Thursday respectively.
Crude futures pared Friday’s near three percent gains as Israel’s military continued air and ground operations in Gaza.
Ground battles raged inside the northern Gaza Strip on Monday and Israeli tanks were seen on the outskirts of its largest city in the war against the Palestinian militant group Hamas.
– ‘Highly volatile’ –
“Oil prices are coming under pressure… despite an intensification of the Israel-Hamas war,” said Tickmill analyst James Harte.
Despite Israel stepping up its advances into Gaza, “for now markets appear to be looking beyond the reports on the view that the conflict looks likely to remain contained.
“Although this view is keeping oil prices lower for now, the situation remains highly volatile and any sign of the conflict spilling over into a wider Middle East conflict should see oil prices firmly bid,” said Harte.
Israel’s intensifying land and air campaign since Hamas’s October 7 attacks has heightened fears for the 2.4 million civilians trapped inside besieged Gaza, where the Hamas-ruled health ministry says more than 8,300 have died.
Dozens of Israeli tanks rolled into the fringes of Gaza City, eyewitnesses said, after a night of heavy clashes in nearby areas where the army said it had killed dozens of fighters and Hamas also reported fierce fighting.
The Israeli land forces are supported by heavy fire from fighter jets, drones and artillery that the army said had struck more than 600 targets within 24 hours, up sharply from 450 a day earlier.
Instead of a broad offensive, officials have currently opted for targeted attacks on a day-to-day basis, tempering worries of an all-out war that could drag in Iran and even the United States.
The limited escalation also provided some support for equities, as a bit of bargain hunting after sharp falls last week, which sent the S&P 500 into a correction, or a drop of 10 percent from its recent peak in July.
“Entering the ‘correction zone’ has triggered some buy-the-weakness interest predicated on the speculation that the market is due for a bounce,” said Briefing.com analyst Patrick O’Hare.
– ‘Big week’ for rates –
“It’s a big week for interest rate decisions,” said AJ Bell investment director Russ Mould.
Both the Fed and the BoE “are expected to keep rates unchanged, which should provide some relief to investors, although much of the focus will be on commentary about the path for rates going into 2024”, Mould added.
The decisions come one week after the European Central Bank left eurozone interest rates unchanged last Thursday, bringing an end to a series of hikes that started in July last year.
Policymakers had raised rates at each of their last 10 meetings as they sought to rein in soaring inflation driven in large part by surging energy prices in the wake of Russia’s invasion of Ukraine.
But ebbing price pressures and signs of weakness in the economy prompted the ECB to hold borrowing costs.
– Key figures around 1330 GMT –
Brent North Sea crude: DOWN 1.7 percent at $88.92 per barrel
West Texas Intermediate: DOWN 2.0 percent at $83.80 per barrel
New York – Dow: UP 0.9 percent at 32,695.18 points
London – FTSE 100: UP 0.9 percent at 7,359.50
Frankfurt – DAX: UP 0.5 percent at 14,756.40
Paris – CAC 40: UP 0.7 percent at 6,843.99
EURO STOXX 50: UP 0.7 percent at 4,040.56
Tokyo – Nikkei 225: DOWN 1.0 percent at 30,696.96 (close)
Hong Kong – Hang Seng Index: FLAT at 17,406.36 (close)
Shanghai – Composite: UP 0.1 percent at 3,021.55 (close)
Euro/dollar: UP at $1.0603 from $1.0565 on Friday
Dollar/yen: UP at 149.72 yen from 149.66 yen
Pound/dollar: UP at $1.2138 from $1.2122
Euro/pound: UP at 87.37 pence from 87.15 pence
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