26th March 2015
The price of oil surged higher on Thursday on news that air strikes had been launched on Yemen by Saudi Arabia and its allies, heightening fears of disruptions to oil supply.
Crude prices rose around six per cent on the news, while shares in Europe, the Middle East and Asia declined.
Germany’s DAX lost nearly 1.5 per cent in morning trading, the French CAC 40 fell over 1.2 per cent, the UK’s FTSE 100 declined almost 1.3 per cent and the Euro Stoxx 50 was around 1.2 per cent lower.
The price of Brent crude oil rose to a two-and-a-half-week high on the escalating tensions, trading just below $60 per barrel, while WTI crude breached the $50 per barrel level before falling back.
Reports then surfaced that there was no immediate threat to shipments of oil coming out of the Middle East, which helped ease the pressure on oil prices. However, investors remain worried that Iran may be drawn into the conflict and extend this period of disruption.
Despite the uncertainties surrounding the situation, the prolonged period of oversupply and the glut in global oil stocks means that there should be no immediate threat to supply.
Elsewhere, the greenback continued to drift lower on Thursday and edged closer to a four-week low versus the Japanese yen. The euro also benefited from the dollar’s decline and looked set to rechallenge the $1.100 barrier.
Data overnight from the US came in surprisingly soft, as reports showed that durable goods orders fell for the sixth consecutive month and adds to signs that the US economy may have slowed sharply earlier this year.
These indications add to growing expectations that the Federal Reserve will likely hike interest rates later in the year, rather than previous hopes of a June rate rise, especially after the more dovish than expected announcement following the last Federal Open Market Committee meeting.
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