Oil Prices Surge Again on Israel-Iran Strikes

Oil prices jumped 4% at Monday’s open following further missile exchanges between Israel and Iran, before settling around 1% higher. Most Asian indices rose despite the conflict helped by data showing Chinese retail sales beat expectations. Focus this week remains on major central bank decisions, including the Fed, Bank of England, and Bank of Japan, while G7 leaders gather in Canada to deal with an escalating war and unresolved trade tensions.

Equities

The FTSE 100 slipped 0.4% on Friday, pulling back from a record high reached in the previous session. Tensions in the Middle East weighed on sentiment, though rising energy prices helped limit losses.

Shares in BP rose, supported by a 6% jump in crude oil prices as investors reacted to escalating conflict between Israel and Iran. Shell also closed higher, contributing to a 0.8% gain for the broader energy sector.

British Airways owner IAG dropped 3.7% as airlines rerouted flights away from the Middle East, pushing up operational costs. EasyJet shares fell 2.7%, while Wizz Air dropped 5.6%. Cruise operator Carnival shed 3.4%.

Gas producer Energean fell 5.1% after it temporarily halted production on a floating platform off the coast of northern Israel.

In the US, all three major indices closed lower as investors de-risked. The S&P 500 dropped 1.13% to 5,976.97, the Nasdaq lost 1.30% to 19,406.83, and the Dow Jones fell 1.79% to 42,197.79. The weakness followed news that Iran had fired missiles at Israel in response to Israeli strikes targeting nuclear sites and missile factories.

Energy stocks were among the few gainers. ExxonMobil rose 2.2%, while Diamondback Energy climbed 3.7%, both benefiting from the rise in oil prices. In contrast, airline shares fell sharply. Delta Air Lines was down 3.8%, United Airlines dropped 4.4%, and American Airlines slipped 4.9% on fears that higher fuel prices would hit margins.

Lockheed Martin, Northrop Grumman, and RTX Corporation all gained more than 3%, as demand expectations for defence contracts rose amid military conflict.

Oracle jumped 7.7% to a record high, rallying for a second day after its AI-related forecast exceeded expectations. Nvidia dipped 2.1% and Apple fell 1.4%.

Visa and Mastercard both lost more than 4% after reports that major retailers were exploring cryptocurrency alternatives that could sidestep traditional payment systems.

Forex & Commodities

The dollar held steady on Monday, trading at 144.08 yen after earlier gains of 0.4%. The euro was also little changed around $1.1550, while the dollar index edged down 0.1% to 98.11. The Swiss franc was flat at 0.811. Risk-linked currencies such as the Australian and New Zealand dollars posted small gains.

Norway’s krone rose 0.3% to reach its strongest level since early 2023.

Sterling was broadly stable ahead of this week’s Bank of England meeting. Traders expect the BoE to keep interest rates unchanged, following mixed signals on inflation expectations and steady wage growth.

Monetary policy decisions from the Federal Reserve, Bank of Japan, and several other central banks are also due this week. The Fed is widely expected to hold rates, with markets focused on updated forecasts and the potential for rate cuts later in the year. Futures markets are pricing in two cuts by the end of 2025, possibly starting in September.

Gold prices eased on Monday towards $3,410 an ounce after hitting their highest level since April 22 earlier in the session. The move followed profit-taking after recent gains. Spot silver rose 0.2% to $36.36 per ounce, while platinum and palladium each added 1.5%.

Oil prices were volatile after last week’s sharp rise. Both benchmarks had surged over $4 earlier in the day before briefly falling into negative territory. On Friday, they ended up by 7%, having gained over 13% at one point. The conflict between Israel and Iran remains the key concern for oil markets, particularly the risk of disruption to the Strait of Hormuz, which handles around a fifth of global oil supply.