Foreign media said that on the night of January 8 local time, crude oil prices soared, while U.S. stock index futures fell, after Iran launched several missiles to an air base with U.S. forces in Iraq, raising concerns about the expansion of the Middle East conflict.
Iran’s state television said it was a retaliatory act against the death of Islamic Revolutionary Guard general Sulaimani, the Wall Street Journal reported on its website on January 8. Sulaimani was killed in a recent US air strike.
West Texas Intermediate base crude oil (WTI) for February delivery rose more than 3% on the news of Iran’s attacks, the report said.
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Some analysts believe that if tensions in the Middle East intensify, international oil prices may rise for some time. At a time when the outside world is worried about the tension in the Middle East, Iranian foreign minister Zarif said that Iran has taken a proportional self-defense action in accordance with the UN Charter and has ended, and does not seek escalation or war.
According to public opinion, despite the statement made by Iran’s foreign minister, the situation in the Middle East is still uncertain. Against this background, will crude oil prices continue to rise?
Oil price rise or temporary
According to the Japanese economic news website on January 8, as early as the beginning of the year, the international market of crude oil and gold rose together. US crude oil futures rose to a high since April 2019, while gold futures in the New York market hit a new high since April 2013, six years and nine months apart. In addition to tensions in the Middle East, the appreciation of the yen against the US dollar in the foreign exchange market is also driving up crude oil and gold prices denominated in US dollars.
According to the report, the crude oil market in this round has risen since the end of 2019. US crude oil futures (recent contracts) broke the $60 mark on December 13 last year. It is self-evident that it is the tense situation in the Middle East that has not eased the hidden economic worries that pushed up the market at the beginning of the year. With the US killing the commander of the Iranian Revolutionary Guard as a turning point, the intimidating game between the US and Iran is intensifying. Speculation is being driven by the market’s view that the incident is likely to affect oil supply in the Middle East.
It is difficult to understand that the crude oil market is slow to respond to the attacks on oil tankers near the Strait of Hormuz in 2019 and the explosion of Saudi oil facilities, but this time it is quick to respond. “Considering the attacks on Saudi Arabia in 2019 and other factors, the market is aware of the unpredictable risks in the Middle East in the future,” said Inoue Chun, chief economist of Mizuho Institute of comprehensive research in Japan
However, the global economic downturn has not changed the situation of crude oil prices rising, according to the report. Even if the situation in the Middle East is tense and the oil price rises temporarily, these will have a negative impact on the economy and the demand for oil will decrease.
Analysts pick more safe haven assets
Public opinion has observed that although Iran’s foreign minister has said that the self-defense action is over, the outside world is still worried about the development of the situation in the Middle East, and analysts have begun to select more risk averse assets. It is expected that the increase of geopolitical uncertainty will push up the share price of U.S. defense enterprises and become one of the risk aversion targets.
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Gold has always been seen as a safe haven asset, with spot prices rising more than 3% this year to the highest level since April 2013, according to Taiwan’s Economic Daily website on January 7. Goldman Sachs and Huaqi both forecast gold prices to rise.
According to the report, Credit Suisse analyst tereca believes that as the gold price continues to rise, large gold mining enterprises will give priority to free cash flow and shareholder compensation, with agnico Eagle mining and Newmont mining company of the United States as their first choice. Analysts at Cormark securities suggest considering gold companies with free cash flow potential, such as sentra gold, Coeur mining, Teranga gold and Yamana gold.
Energy analysts are not encouraging investors to rush into small and medium-sized oil stocks, as it is still necessary to confirm whether tensions between the US and Iran are rising further.
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