9th Oct 2023 10:25
(Alliance News) - Oil prices surged on Monday, as the war in the Middle East entered its third day and investors assessed the potential for the conflict to disrupt supply.
"As it nearly always does, an escalation of tensions in the region has helped push up oil prices. This is inevitable given how much of the world's crude reserves and production are centred there," said AJ Bell's Russ Mould.
Brent oil was quoted at USD86.99 a barrel early in London on Monday, up sharply from USD84.22 at the London equities close on Friday.
On the back of this, blue-chip oil stocks BP PLC and Shell PLC rose 2.8% and 2.4%, respectively.
Conversely, airline stocks opened lower, weighed down by the conflict and cancelled flights. Wizz Air Holdings PLC shed 4.4%, easyJet PLC fell 4.2%, Ryanair Holdings PLC was down 3.3%.
Prime Minister Benjamin Netanyahu warned Israel on Sunday to prepare for a "long and difficult" conflict, a day after Palestinian militant group Hamas launched a surprise assault from Gaza.
More than 700 Israelis have been killed since Hamas launched its large-scale attack, according to the Israel Defense Forces on Monday – the country's worst losses since the 1973 Arab-Israeli war.
Gaza's officials reported at least 413 deaths in the impoverished and blockaded enclave of 2.3 million people, which was hammered by Israeli air strikes on 800 targets ahead of what many feared may be a looming ground invasion.
"While Israel and Palestine are not oil producers themselves, the Middle East is a key region in terms of global oil output. The Israeli authorities have alleged that Iran, a supporter of Hamas and a key oil exporter, has had some involvement in the violence," explained Victoria Scholar, head of investment at interactive investor.
Involvement from Iran is likely to fuel higher oil prices.
Looking ahead, AJ Bell's Mould said: "The wider risk is that a sustained increase in oil prices would act as a renewed inflationary pressure and further underpin the higher rates for longer message which investors in the equity and bond markets seem to be belatedly coming to terms with."
Similarly, Susannah Streeter at Hargreaves Landown said: "This latest jump will fuel inflationary worries, at a time when investors are already jittery about the interest rates potentially staying higher for longer."
By Sophie Rose, Alliance News reporter
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