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Tuesday, June 2, 2020

Oil stabilizes after the initial shock unleashed by Iran’s attack on US forces

Oil prices and global stock markets stabilized after an initial volatility shock as investors bet that an Iranian missile strike against American forces in Iraq would not intensify towards a broader conflict in the Middle East.

Brent crude was 0.6 percent higher at $ 68.70 a barrel in London trade, after falling from a previous peak to $ 71.75 in the Asian session as investors measured the consequences of the action Iranian and the probability of a response from the United States.

US equity futures turned positive after falling to 1.6 percent.

President Trump is expected to make a statement in the next few hours, but he tweeted “all right!” Following the strikes, while Iran’s supreme leader said the attack was a “slap” in the face for the United States, but he remained short of making further escalation threats.

“Until the United States responds to Iran’s most direct attack since the US embassy took hold in Tehran in 1979, tensions are expected to gradually ease and risk appetite should improve,” said Piotr Matys, a senior strategist. of emerging markets in Rabobank.

“However, it is still too early to confidently declare that the conflict has ended. The risk of a very dangerous tit-per-tat spiral remains high and every single step on both sides could prove critical. “

Declines in European markets were measured, with the Stoxx 600 composite index down 0.4 percent and similar falls for major exchanges across the continent.

Shares of the state-owned oil company Saudi Aramco reached a new low of 34 riyals, the lowest level since the group floated on the stock market in Saudi Arabia last month, with regional markets falling.

Markets around the world were hit after Tehran’s Revolutionary Guard said it had fired “dozens of rockets” at structures in Iraq, including the Ain Assad base, which houses US troops. The attack was a retaliation for a US drone strike that killed Qassem Soleimani, head of Iran’s Quds elite force responsible for military operations overseas, and marked a serious escalation in the clash between Iran and the United States .

However, investors were reassured by the apparent absence of US casualties and the measured tone of the official responses. President Donald Trump said on Twitter that “the assessment of victims and damages [are] taking place now “and” So far, so good! “after the attack. Iranian foreign minister Mohammad Javad Zarif tweeted that Iran” does not seek escalation or war, but will defend itself against any aggression. ”

“We knew that some sort of retaliation was going to happen. . . so this is not overly shocking, “said Jim Paulsen, Chief Investment Officer at Leuthold Group.” I hate to say it, but there are no casualties yet, so right now I would say markets will not face too much selling pressure. ”

Line graph of Brent crude oil price per barrel ($) showing oil market volatility after Iran attack

Investors had sought safer segments of the markets in response to news of the missile attack. The price of gold, seen as a paradise during times of uncertainty, rose to a peak of nearly seven years, rising 2.2 percent to $ 1,600 per troy ounce. The European morning was trading at $ 1,580, making a 0.5 percent gain.

The 10-year US Treasury yield fell 2 basis points to 1.8038 percent after hitting a low a month earlier, while the Japanese yen remained flat against the dollar after rising at the beginning of the day.

Japan’s Topix stock index lost 1.4 percent, while Hong Kong’s Hang Seng slid 0.8 percent. The Chinese CSI 300 of stocks listed in Shanghai and Shenzhen fell by 1.2 percent.

“The biggest risk is that we continue to see a tit-for-tat model that escalates into a major conflict,” said Chris Gaffney, TIAA Bank’s president for world markets. “I expect [markets] to recover quickly from any instinctive sale as long as there is no further military action. “

But some analysts have warned that any further escalation could mean that Brent crude oil prices will continue to rise, up to $ 75 a barrel.

“Depending on any potential further Iranian action, which is likely, or likely retaliation by the United States, the price could hover around these levels or rise further to $ 80 a barrel and beyond,” said Iman. Nasseri, CEO for the Middle East with FGE energy consultancy.

Reporting by Philip Georgiadis, Andrew England and David Sheppard in London, Daniel Shane in Hong Kong, Jennifer Ablan and Colby Smith in New York

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