World oil prices dropped on Monday as traders hoped that a full-scale conflict in the Middle East could still be avoided. This comes as Israel reported that its forces had killed dozens of Hamas militants in clashes in Gaza. The news of the decline in oil prices led to a rise in equities in both Europe and on Wall Street, as investors grew optimistic that the US Federal Reserve and the Bank of England would maintain their current interest rates.
The decline in oil prices can be attributed to the Israeli military’s ongoing air and ground operations in Gaza. Ground battles were reported in the northern Gaza Strip, with Israeli tanks entering the southern outskirts of the largest city in the region. However, analysts have noted that the Israeli incursion into Gaza has been more measured than initially anticipated, causing crude oil prices to drop below $90 a barrel.
The initial gains in oil prices were driven by concerns that other oil-producing countries in the Middle East would become involved in the conflict if Israel launched an all-out invasion. However, these concerns have subsided as other nations have chosen to remain on the sidelines. Analyst James Harte of Tickmill warns that while the situation currently remains volatile, any sign of the conflict spilling over into a wider Middle East conflict could lead to a significant increase in oil prices.
Israel’s intensified military campaign against Hamas has raised concerns for the safety of the 2.4 million civilians trapped in Gaza. The health ministry in Gaza, under Hamas rule, has reported that more than 8,300 people have died as a result of the conflict. Conversely, Israel claims that over 1,400 people, mostly civilians, were killed in Hamas’s attacks in October, with over 230 people taken hostage.
Israeli tanks briefly entered the southern outskirts of Gaza City on Monday, cutting off the main north-south Gaza highway, according to witnesses. The Israeli land forces have received support from fighter jets, drones, and artillery, which have targeted more than 600 locations within 24 hours. However, officials have opted for targeted attacks on a day-to-day basis, rather than launching a broad offensive, in order to prevent an all-out war that could potentially involve Iran and the United States.
The limited escalation in the conflict has provided some support for equities, as well as opportunities for bargain hunting following last week’s sharp declines. The S&P 500 experienced a 10 percent drop from its recent peak in July, putting it into a correction zone. Analyst Patrick O’Hare of Briefing.com suggests that the market may bounce back due to buy-the-weakness interest triggered by the correction.
This week, the focus will be on the interest rate decisions of both the Federal Reserve and the Bank of England. Both central banks are expected to keep rates unchanged, providing relief to investors. AJ Bell investment director Russ Mould highlights that market attention will be on the commentary about the path for rates going into 2024. The decisions come after the European Central Bank left eurozone interest rates unchanged last week, following a series of hikes over the past year.
In response to these events, Brent North Sea crude dropped by 2.8 percent to $87.94 per barrel, while West Texas Intermediate dropped by 3.3 percent to $82.71 per barrel.
More detail via France 24 here… ( Image via France 24 )
