|22 July, 2019

Monday Outlook: Oil prices rise on Gulf tanker seizure tensions

Oil prices rose on Monday amid high tensions in the Middle East after a British tanker was seized by the Iranian military at the end of last week.

Image used for illustrative purpose. A pumpjack (oil derrick) and oil refinery in Seminole, West Texas.

Image used for illustrative purpose. A pumpjack (oil derrick) and oil refinery in Seminole, West Texas.

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  • Oil prices higher on Gulf tensions
  • Asian shares lower on Monday
  • Middle East stock markets were mixed
  • Dollar higher on tensions; gold dropped on stronger dollar

Oil prices 

Oil prices rose on Monday amid high tensions in the Middle East after a British tanker was seized by the Iranian military at the end of last week.

Brent crude futures gained 51 cents, or 0.8 percent, at$62.98 a barrel, while the international benchmark spiked to $63.47. West Texas Intermediate (WTI) crude futures rose 15 cents, or 0.3 percent, at $55.78, while WTI declined by more than 7 percent and Brent was down by more than 6 percent last week.

"Falling global demand and rising U.S. stockpiles have helped turn oil charts very bearish, but that may not last as tensions remain high in the Persian Gulf," said Edward Moya, senior market analyst at OANDA in New York, according to a Reuters report.

Global markets  

Asian shares were down on Monday as investors anticipate smaller interest rate cut by the U.S. Federal Reserve.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped by 0.4 percent.

Japan's Nikkei was down by 0.3 percent ahead of the earnings season which begins this week. Hong Kong's Hang Seng dropped by 0.9 percent, while South Korea's KOSPI .KS11 was 0.1 percent lower.

Global stock markets rose slightly towards the end of last week following dovish comments by New York Fed President. But investors afterwards scaled back expectations of a larger interest rate cut after the Wall Street Journal reported that the U.S. Fed was likely to cut rates by 25 bps this month.

Middle East markets 

Gulf stock markets were mixed on Sunday, but the Saudi index in particular was weighed down by the British tanker tensions in the Gulf region.

Saudi index lost 0.8 percent, and financial stocks on Tadawul had wide losses ahead of an anticipated interest rate cut by the U.S. Federal Reserve this month.

The Kuwaiti index was down by 1.2 percent due to profit taking.

In the United Arab Emirates, there were mixed results with the Dubai the index dropping by 0.9 percent weighed down mainly by the property sector as Arabtec dropped by 2.3 percent, DAMAC Properties was down by 2 percent, and Emaar Development was 1.6 percent lower. Meanwhile, the Abu Dhabi index inched up by 0.3 percent supported by the UAE’s largest lender First Abu Dhabi Bank which gained 1 percent.

In the wider MENA region, Egypt's blue-chip index was down by 0.7 percent as it was dragged down by real estate stocks performance.

"Markets are following the negative global lead as geopolitical risks take centre stage following the UK tanker seizure," Vrajesh Bhandari, senior portfolio manager at Al Mal Capital told Reuters. 

Currencies 

The dollar was higher on Monday as Gulf tensions bolstered safe-haven assets and investors dialed back expectations of larger U.S. interest rate cuts this month.

The dollar hit the level above 108 yen, its highest since Wednesday. The dollar index was little changed at 97.179 after rising by 0.35 percent last week.

“There’s a lot of uncertainty creeping in to the market,” Nick Twidale, director at Sydney trade financier XChainge told Reuters.

“I think we’ve seen a bit of safe-haven flows back into the dollar,” he said.

The euro was at around $1.12, a break of which could lead to more losses. The pound held near $1.2502, as caution emerged since mid-March due to fears of a hard Brexit. 

Precious metals 

Gold dropped from a six-year high as the U.S. dollar traded higher and as investors lowered  expectations for a high interest rate cut by the Federal Reserve. Spot gold XAU= traded at $1,427.94 an ounce after hitting a record of $1,452.60 on Friday.

(Writing by Nada Al Rifai; Editing by Mily Chakrabarty)


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© ZAWYA 2019

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