The subject of the Middle East is being closely watched by global financial markets, but Brent crude oil (OIL) contracts today do not seem to reflect concerns about a broader conflict between Israel and Iran.
- Iran has promised Israel retaliation, blaming it for the deaths of 7 citizens at the Syrian embassy. In response to these declarations, the IDF armed forces raised the alarm; soldiers' leaves of absence were canceled, and reserves were put on alert.
- At the same time, Israel activated anti-missile systems, including the Iron Dome. However, this does not meet with a significant reaction from oil buyers, who continue to see the situation in Gaza as a local conflict and do not expect an escalation into a wider war in the region;
- The market today is not pricing the chances of Iran directly attacking Israel in retaliation; at most, Hezbollah will do so more intensively, and such a scenario would remain rather unaffected by Brent prices.
- It is worth emphasizing, however, that wars often erupt to the surprise of outside observers, and there is no guarantee that the difficult situation in Gaza will not escalate into conflicts targeting Israel.
- The overall tense situation in the Middle East suggests that a political premium may be maintained, although as long as there is no visible fighting between major countries, the market sees no chance of supply disruptions; thus, it may be relatively small. Also Wall Street sentiments are good, with VIX index losing more than 3%.
Oil (M15)
Looking at oil, on the short interval we see that since the beginning of April, sellers have clearly prevailed on volume, which contrasts somewhat with the rather alarming signals coming from the Middle East. Also, the explosion at the Iranian embassy, in Damascus, Syria, has not caused a reaction from buyers. It seems that this may be influenced by the impact of other factors indicating limited upside potential, as the political premium is only one component affecting Brent prices. The price has fallen below all key simple moving averages, and important short-term support is located at $86 per barrel (71.6 Fibo retracement and previous price reactions).
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