They no longer particularly fear that it might spread to the wider Middle East region
More than a month after the start of his war Israel and Hamas, the international markets are no longer particularly afraid that it may spread to the wider Middle East region and cause a new energy crisis.
The fact that there was no involvement of other countries in the war, despite the escalation of Israel’s ground attack on Gaza Strip, made investors feel more at ease. The basic scenario, after all, of major financial houses – and think tanks – such as UBS and Oxford Economics – is that there will be no general flare-up that would limit oil supply in a market that is already tight due to OPEC production cuts .
This is not to say that there is no risk as the situation is fluid while the war rages, but the feeling in the markets is that it is now less.
The risk premium on oil and natural gas prices after Saturday, October 7, when the Hamas attacked Israel, gradually decreased and in the last week was virtually eliminated. At the same time, this development also contributed to the improvement of prices on international stock exchanges and bond markets.
This was most evident in the oil market, where the Brent price had risen from $84 a barrel on October 6 to $88 on Monday, October 9 to surpass $92 on October 19. But then the gradual retreat of prices began, which accelerated in the last week and now they are moving close to 80 dollars.
The drop in prices was also led by the expectation of a slowdown in demand and mainly the estimate by the US Energy Information Administration that consumption in the country will decrease by 300,000 barrels per day this year, but the feeling that the geopolitical risk from the conflict in the Middle East has decreased. played a catalytic role. After all, the decrease in consumption in the US is compensated by the increase in demand from other large economies, such as China and India, while the International Energy Organization predicts that demand will increase in 2024 by 800,000 barrels per day.
Last week, the decline in the reference price of natural gas in Europe (TTF) was also dramatic. From almost 43 euros per megawatt hour, which closed on October 6th, it rose above 50 euros and reached a high of 56.3 euros on October 13th. It then began a sideways movement until the end of October, but remained above 52 euros, but last week it plunged to 45 euros, close to the levels before the war in the Middle East.
The fear of a new surge in oil prices had also strengthened the tendency to increase bond yields, especially in the US, where the yield on 10-year government bonds reached 5%, a level that had been noted since 2007. And this, because a another energy crisis would fuel inflation and force central banks to raise interest rates further or keep them longer at their current very high levels. The easing of concerns about the war in the Middle East helped to significantly de-escalate yields, in which decisions by central banks not to proceed with further increases in their interest rates played an important role. The yield on 10-year US Treasuries fell to 4.6% and the German equivalent to 2.6% from 3% reached in October.
