In an uneasy start to the week, markets are reacting to a declaration of war between Israel and Gaza following a weekend of devastation. A surprise attack conducted by Hamas on Israel has flared concerns of further destabilisation in the region and its potential impact on the oil price.
Launching a coordinated strike on Saturday, military personnel from Gaza breached Israel via land, sea, and air without warning. It is believed that 700 Israelis have lost their lives. Another 413 Palestinians are also among those who have perished.
Whether by chance or design, the offensive commenced one day shy of the 50th anniversary of the Yom Kippur War. The October 1973 war resulted in the Arab oil embargo, instigating what became known as the 1973 oil crisis, with the oil price nearly tripling in mere weeks.
Influencing the oil price
The Middle East is responsible for around a third of all oil supply globally. Hence, heightening geopolitical risks in or around the region can impact prices.
As of this morning, the price for West Texas Intermediate (WTI) crude oil is up 4.2% to US$86.27 per barrel. Similarly, Brent crude is 3.97% higher, hitting US$87.94 per barrel.
The conflict between Israel and Gaza could have supply ramifications at a time when oil production is already being constrained.
Earlier this year, the Organisation of the Petroleum Exporting Countries (OPEC) opted to extend their oil output cuts into 2024. The decision has been followed by a gradual trend higher in the oil price over recent months.
The weekend's developments add to concerns that the oil price could pierce US$100 per barrel in the near term.
It's unnerving news for central banks attempting to orchestrate a 'soft landing' while stamping out inflation. Last month, Australia's consumer price index came in at 5.2%, due in large part to rising fuel prices.
The uptick in Aussie inflation, increasing from 4.9% to 5.2%, was the first jump in four months.
How are ASX energy shares reacting?
Despite the conflict, the Australian share market is moving upwards today.
The strongest-performing sector heading into lunch is ASX energy shares, lifting on the improved oil price. Taking a snapshot of the landscape, the biggest movers include:
- Karoon Energy Ltd (ASX: KAR) up 6.15%
- Woodside Energy Group Ltd (ASX: WDS) up 2.9%
- Santos Ltd (ASX: STO) up 2.72%
- Beach Energy Ltd (ASX: BPT) up 2.17%
Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is 0.51% higher.