ARMED CONFLICT CONTRIBUTES TO A SHARP INCREASE IN FUEL PRICES

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Following a summer surge that saw oil prices nearing $100 per barrel, the cost of crude was once again on a downward trend. However, a recent conflict in West Asia has abruptly driven it back up.

As tensions escalated between Israel and Hamas, the price of oil increased by as much as 5 percent. While prices stabilized somewhat on Monday morning, the global Brent oil benchmark seemed to be inching its way back toward $90 a barrel in the afternoon.

It’s important to note that neither Gaza nor Israel is a significant oil producer, but energy analysts cautioned that prices could climb further if the conflict were to spread across the region, particularly if Iran became actively involved in the war.

Kang Wu, an energy analyst at S&P Global Commodity Insights, warned, “Market sentiment could respond swiftly to the tragedy in West Asia, especially concerning oil prices.”

The situation might escalate if Israel were to explicitly blame Iran for the attacks, potentially drawing Iran and other Persian Gulf countries into the conflict. This could lead to concerns about interruptions in oil tanker traffic through the Strait of Hormuz, a critical passage for Gulf oil exports.

Energy prices had been declining in the past week due in part to unexpectedly robust oil output from various countries, including some in the Organization of the Petroleum Exporting Countries (OPEC). Factors such as weak economic growth in China, high interest rates raising concerns about growth in Europe and the US, and a strong dollar also contributed to the decline.

Copper prices experienced a brief rise to a one-week high, but sustained gains appeared unlikely due to weak demand in top consumer China and rising inventories.

Wheat prices on the Chicago Board of Trade were buoyed by fears of the conflict spreading and were up by 0.75 percent.

Raw sugar prices also increased by about 1 percent, influenced in part by trends in energy markets, as cane is used to produce both sugar and ethanol.

US natural gas futures reached an eight-month high, driven in part by the conflict and other bullish factors, including a possible strike by workers at LNG export plants in Australia.

India, the world’s third-largest oil importer, closely monitored the West Asian conflict, with oil minister Hardeep Singh Puri expressing concern over rising oil prices and their potential impact on the global economy.

The Sensex stock index declined on Monday, and gold prices rose as investors worried that the West Asian crisis could hamper global growth. Rising crude prices added to concerns in a market already fretting over high interest rates and persistent inflation.

Gold prices increased by Rs 300 to Rs 58,350 per 10 grams in the national capital on Monday, with geopolitical concerns leading to increased interest in safe-haven assets like gold.

Shrikant Chouhan, head of research (retail) at Kotak Securities Ltd, noted, “There are concerns that since most of the oil-producing nations are close to the conflict zone, a prolonged war could trigger an upsurge in international crude oil prices.”

The conflict also had a specific impact on Adani Ports & Special Economic Zone (APSEZ), which had acquired Haifa port in Israel for $1.2 billion earlier in the year. APSEZ shares fell by 4.89 percent to Rs 789.90, though the overall contribution of Haifa to APSEZ’s numbers was just 3 percent of the total cargo volume, according to APSEZ.

 

 

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