Oil Price: what really spooked the markets?

 

oil price Monday

The crude oil markets had a rocky start on Monday, perhaps owing to a range of unexpected global developments.

At the top of the list was the drone attack, attributed to Iran, on an Israeli-registered tanker off the coast of Oman. The serious attack that led to the death of the captain and a British security officer created a palpable tension in the volatile region, just less than a week away for the inauguration of the new Iranian president.

The US, UK and Israel now say in unison that Iran is responsible for the attack. The US warned that there would be an appropriate response in the coming days, leaving the nature of it open to speculation.

In addition, Israel vowed to deal with its own way; it did not specify or hint what form that response would be, either.

Military analysts believe the response may be beyond imposing new sanctions; a military response, on the other hand, has the potential to escalate the crisis and even bring in more shadowy actors into the conflict arena.

Whatever the form that the threatened response is going take of, the crude oil supply through the Strait of Hormuz is going to be affected in the event of a conflict breaking out, regardless of its duration and intensity; it’s an irony that Iran has already made a new terminal for its oil exports, away from the busy passage for global supply of the commodity.

In these circumstances, the anticipated reaction from the crude oil markets is an upward trend in the price of oil. The price of the commodity, however, substantially went down in the early trades: at 11:50 GMT, WTI and Brent lost their values by 1.61% and 1.31% respectively.

That means, the investor-worries go beyond the Middle Eastern tension.

The growth of China appears to be a major concern: the anticipated, steady growth has not materialised and the outbreak of the Delta variant in two major cities has cast a gloomy shadow over China’s ability to weather the Covid-19 storm unscathed; crude oil imports from China has already suffered due to evolving realities.

The indisputable evidence that the new variants of the Coronavirus still have the potential to disrupt the economic activities across the globe has spooked the investors. In these circumstances, one thing that the investors in the sector do not want to hear is yet another conflict breaking out in the Middle East.

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