On April 19th, Israel carried out a military strike inside Iran. This action was in retaliation after Iran launched hundreds of drones, ballistic missiles and cruise missiles that sought to overwhelm Israel's air defence systems. This represents a potentially dangerous escalation in the rapidly widening conflict in the Middle East, one that Iranian government officials have thus far attempted to minimize.
Following the strike, Iranian state media reported that the country's air defenses intercepted three small drones over the central city of Isfahan. This development occurred just hours after senior US officials, citing Israeli sources, disclosed that Israeli missiles had targeted an Iranian site. The aftermath of the strike saw reported explosions in Isfahan as air defenses were activated, prompting the suspension of flights across several areas, including Tehran and Isfahan.
The potential for an expanded conflict in the Middle East poses a risk to the recent uptick in the prices of riskier assets seen since the beginning of the year. The IMF's Global Financial Stability Report, released on Tuesday (16/04/2024), pointed out that positive outlooks for the global economy avoiding a recession have led to higher prices for assets such as stocks and lower-quality bonds since the beginning of the year.
Market Response and Geopolitical Implications
Stock futures declined and oil prices increased during overnight trading. As investors continue monitoring developments in the Middle East, concerns of escalating conflicts between Israel and Iran intensify.
Crude oil prices soared to their highest levels in months after Iran's drone and missile attack on Israel on April 13th, reaching above $90. However, they later dropped slightly as the Iranian government downplayed the impact of Israel's strike on April 19th. Global benchmark Brent traded 1.73% higher at $88.62 a barrel after topping $90 earlier, while US West Texas Intermediate (WTI) rose 1.75% to $84.1 per barrel.
Despite growing worries about increased geopolitical tensions in the Middle East, analysts on Wall Street saw Israel's restricted strike on Iran and Tehran's restrained reaction as indications that both governments are keen to manage the crisis.
Market Outlook and Strategic Considerations
Crude oil futures closed slightly higher on Friday after a week of volatility, but overall, prices fell for the second consecutive week. In an unprecedented move, two nuclear-armed nations exchanged missile and drone attacks. Additionally, the US announced plans to impose sanctions on Iran's oil, with the EU contemplating similar measures. While these developments traditionally favor energy prices, the market remains uncertain.
The weekly chart for crude oil indicates that the seasonal low which occurred around mid-December 2023 has since experienced a consistent upward trend until the end of April 2024. Typically, the most significant seasonal trend in the global oil market concludes in early May. At this point, we will examine two seasonal pattern timeframes, the 5-year and 15-year, to assess potential directions for crude oil movement in the coming months.
As reported by CNN, “We expect a wider regional conflict will be avoided, but the Israel-Hamas war and the confrontation with (Iran-backed) Hezbollah appear set to continue throughout 2024,”
Trading Crude Oil Futures
Trading View conducted a thorough analysis on the matter and concluded that despite a slight rise in crude oil prices towards the end of a turbulent week, the market saw its second consecutive weekly decline. Unprecedented exchanges of missiles and drones between nations possessing nuclear arms, combined with forthcoming US sanctions on Iran's oil exports and similar deliberations by the EU, typically indicate promising prospects for energy prices.
However, a potential shift in 15-year seasonal trends, with the customary upward trajectory from December to May nearing its conclusion, introduces complexity. The recent upsurge, buoyed by US government initiatives to replenish their depleted oil reserves, highlights ongoing market dynamics.
Refineries remain interested in buying fossil fuels, but upcoming price changes may be affected by geopolitical tensions and changing economic conditions. To understand where crude oil markets are heading, it's crucial to closely monitor shorter-term seasonal patterns over five years and keep an eye on geopolitical developments. This helps us anticipate trends in the crude oil market in the coming months.
Brent Crude Futures Contract (Intercontinental Exchange)
The Brent Crude Futures Contracts has the following specifications:
The contract size for Brent Crude Futures Contract has a minimum price fluctuation of one cent ($0.01) per barrel.
Trading shall cease at the end of the designated settlement period on the last Business Day of the second month preceding the relevant contract month (e.g. the March contract month will expire on the last Business Day of January).
Contract months are for January, March, May, July, August, September, and November.
Trading Hours are from Monday to Friday, at these trading hours:
New York: Trading 8:00 PM – 6:00 PM/ 20:00-18:00
London: Trading 1:00 AM – 11:00 PM/ 01:00 – 23:00
Singapore 09:00 AM – 07:00 AM/ 09:00- 07:00
Brent Crude Futures symbol: B
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