War Fears Surge as Israeli-Iran Tensions Shake Markets
Market jitters surged this morning (Beijing time) after unverified reports on Telegram suggested that the Israeli Air Force launched strikes on Iran. Despite the absence of confirmation from mainstream media or credible sources, the rumors stirred a sharp reaction. At 6:30 AM, WTI crude prices spiked 1%, and gold prices briefly followed suit before retreating.
The growing tension in the Middle East, however, is very real. Sources claim Israel is preparing retaliatory actions against Iran, while Iranian media reported that Iran has outlined 10 potential responses to any Israeli attacks. These developments have fueled market speculation, especially around a potential Israeli strike on Iranâs oil infrastructure.
On Monday, Brent crude broke past $80 a barrel, its highest level since August, driven by fears of an escalation. Both Brent and WTI surged 3.7%, continuing last weekâs gains amid growing concerns over Israelâs response to an Iranian missile strike on October 1. While U.S. President Biden has hinted at alternatives to attacking Iranâs oil fields, uncertainty remains high.
According to Israel's Channel 13, citing an anonymous U.S. official, Israelâs response to the missile attack is imminent, but specific details remain elusive. With Israel previously vowing retaliation, speculation is mounting over potential strikes on Iran's vital oil infrastructure.
Energy market experts, like Rebecca Babin of CIBC Private Wealth Group, have noted growing anxiety, comparing the tension to the anticipation before a roller coaster drop. Meanwhile, Middle East tensions continue to escalate, with Hamas launching rockets into Tel Aviv and Israel conducting military actions in northern Gaza and Lebanon.
The region, which accounts for around one-third of the worldâs oil supply, has seen significant impacts on oil prices. Last week, Brent crude posted its largest weekly gain since January 2023. Goldman Sachs analysts predict that a disruption in Iranian oil supplies could drive Brent prices to $90 per barrel.
Traders are also watching algorithmic trading programs, known as commodity trading advisors (CTAs), which may inject up to $40 billion into Brent and WTI if prices continue to rise sharply. Hedge funds and speculators, who had previously held record short positions, have been rapidly reversing those bets amid the heightened geopolitical tension.
Adding to market concerns, Hurricane Milton in the Gulf of Mexico has prompted Chevron to evacuate an oil platform and halt production, further straining potential supply chains.
The oil options market remains bullish, with Brent implied volatility at its highest in nearly a year. Investors are positioning themselves for further price increases, reflected in large volumes of exchange-traded products attracting retail investors. However, as energy expert Scott Shelton points out, many traders, worn down by a tough year, are reluctant to take on significant volatility risk so close to yearâs end.
With tensions rising and markets on edge, the next few days could bring major price shifts and heightened uncertainty.
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