Oil prices experienced a notable decline on Monday amidst a turbulent global stock market selloff.
However, the drop in prices was tempered by concerns over potential retaliatory actions from Iran following the assassination of a Hamas leader in Tehran, which could exacerbate tensions in the Middle East.
Brent crude oil, against which Nigerian oil is priced, declined by 51 cents, or 0.66% to settle at $76.30 per barrel.
Similarly, U.S. West Texas Intermediate (WTI) crude decreased by 58 cents, or 0.79% to close at $72.94 per barrel.
The sharp fall in equities markets, spanning from Asia to North America, saw investors retreat from riskier assets, anticipating that the U.S. Federal Reserve might need to implement rapid interest rate cuts to stimulate economic growth.
This sentiment was highlighted by Phil Flynn, senior analyst with Price Futures Group, who noted, “The stock market was falling as the (Friday) jobs report has the market convinced that the Fed once again fell behind the curve.”
The potential for further supply disruptions due to escalating tensions in the Middle East provided a floor to oil prices.
Both Israel and the U.S. are preparing for a possible serious escalation in the region after Iran, alongside its allies Hamas and Hezbollah, vowed to retaliate against Israel for the killings of Hamas leader Ismail Haniyeh and a top Hezbollah military commander last week.
Oil traders are bracing for Iran’s response, though many expect it to be short-lived. John Kilduff, founding partner of Again Capital LLC, suggested that if Iran’s retaliation is brief, the crude futures market might shift focus back to fears of a U.S. recession, which significantly impacted markets on Monday.
“If this passes quickly, crude oil prices will join this enormous dour party and prices will spiral out of control,” Kilduff stated.
The recent volatility in oil prices reflects the delicate balance between global economic concerns and geopolitical risks.
The broader financial markets are closely watching both the Federal Reserve’s monetary policy actions and developments in the Middle East for further direction.
Despite Monday’s decline, the underlying tension in the Middle East remains a critical factor for oil markets. Any significant escalation could quickly reverse the current downward trend in prices.
For now, the market remains cautious, balancing the immediate selloff against the potential for a more prolonged disruption in oil supplies from the region.
