Oil jumps, stocks sink as Mideast conflict prolongs market volatility

Oil prices rallied and equities mostly dropped on Wednesday as traders assessed the latest developments affecting global markets as a result of the Middle East war.

Crude futures fluctuated between gains of around two and six per cent as the release of oil reserves by some countries helped to offset news of attacks on commercial ships in the Gulf.

“Oil prices remain volatile and risk sentiment fragile and trading is on the headlines and rapidly evolving conflict in the Middle East,” noted Neil Wilson, Saxo UK investor strategist.

Europe’s leading stock markets retreated close to one per cent nearing the half-way stage, after Asian indices mostly closed lower.

However, Tokyo and Seoul, which have seen the widest swings since the crisis unfolded, both finished more than one per cent higher.

Financial markets have experienced huge volatility since the United States and Israel began striking Iran at the end of last month.

Tehran has retaliated by attacking targets across the oil-rich Gulf and effectively shutting down the crucial Strait of Hormuz, through which nearly 20 per cent of the world’s oil usually transits to world markets.

Fears that the conflict could drag on for some time − choking off energy supplies − sent both main crude contracts soaring on Monday to within a whisker of $120 a barrel, the highest since 2022. Gas prices also rocketed.

However, prices tanked on Tuesday after US President Donald Trump said the war on Iran was “going to be ended soon”.

“Markets are likely to grow increasingly fearful over the long-term implications with each day that passes,” said Joshua Mahony, chief market analyst at Scope Markets.

“Oil prices remain the main driver of market sentiment,” he added.

Certain countries’ plans to release part of their strategic oil reserves “are undoubtedly part of a highly coordinated strategy”, France’s Finance Minister Roland Lescure said on Wednesday.

Japan and Germany each announced that they plan to tap into their oil reserves to counter high energy prices, which are boosting share valuations for fossil fuel majors.

German arms maker Rheinmetall meanwhile said that the Middle East war offered new business opportunities, especially for its air defence systems, as it forecast continued strong growth this year.

New attacks hit three commercial ships in the Gulf on Wednesday, officials said, with one of the vessels in flames as Iran pressed its campaign against its oil-exporting neighbours.

The US stock market is remaining relatively calm on Wednesday, even as the price of oil gets back to climbing.

The S&P 500 rose 0.1% in early trading and could be heading for another day of relatively modest moves following a punishing stretch of extreme swings caused by the war with Iran. The Dow Jones Industrial Average was down 72 points, or 0.2%, as of 9:35 a.m. Eastern time, and the Nasdaq composite was 0.3% higher.

Since the start of the war, oil prices have been the trigger causing big moves up and down for financial markets worldwide, sometimes by the hour. Oil prices briefly spiked to their highest levels since 2022 this week because of the possibility that production in the Middle East could be blocked for a long time, which in turn raised worries about a surge of debilitating inflation for the global economy.

Several governments said on Wednesday they’ll release some of the oil in stockpiles they’ve set aside for emergencies, including Germany and Japan. Such moves push downward on oil prices in the near term, but it’s likely that only a full resumption of the flow of oil and natural gas from the Persian Gulf area would fully ease the market. That has investors worldwide anxiously awaiting the end of the war.

The price for a barrel of Brent crude, the international standard, rose 3% to $90.42. A barrel of benchmark US crude gained 1.5% to $84.73.

Worries are centered on the Strait of Hormuz, a narrow waterway off Iran’s coast where a fifth of the world’s oil sails on a typical day. The war halted most of that traffic, which has storage tanks for crude in the region filling up because the oil has nowhere else to go. That in turn is pushing oil producers to say they’re cutting their output.

The United States said it took out more than a dozen minelaying Iranian vessels Tuesday, and the Islamic Republic vowed to block the region’s oil exports, saying it would not allow “even a single liter” to be shipped to its enemies.

Gold prices edged lower on Wednesday, weighed ​down by ⁠an uptick in the US dollar and looming inflation concerns ‌that boosted the likelihood ‌of higher interest rates.

Spot gold was down 0.3% at $5,177.50 per ounce, as of 9:18 a.m. ET (1318 GMT). US gold futures for April delivery fell 1.1% to $5,185.20.

The ‌U.S. dollar index inched up 0.3%. A stronger US currency makes dollar-priced commodities ⁠more expensive for holders of other currencies.

“The gold market seems to be in a push-and-pull between safe-haven demand driven by the war and concerns over higher-for-longer interest rates,” said Peter Grant, vice president and senior metals strategist at Zaner Metals.

Gold is often seen as a hedge against uncertainty and inflation, but ​it does not yield interest, making it less attractive when rates are ‌high.

Agencies