Analysts fear heightened supply risks as Middle East crisis sends crude soaring over 3%

markets news, oil news, equity markets, brent crude, geopolitical conflict

Brent crude surged over 3 percent as concerns about the Middle East conflict intensified. Media reports cited explosions in Iran, Syria and Iraq.

Traders awaited Israel's response to Iran's recent attack, with tensions escalating. Analysts warned that unconfirmed strikes could signify increased supply risks, prompting the market to factor in a larger risk premium.

Shortly after Iran's extensive aerial assault on Israel, which saw the deployment of 300 missiles and drones, reports emerged on Israel's retaliatory strike on an Iranian site on April 19. Explosions were witnessed in the cities of Isfahan and Nata, near an Iranian army air base and Isfahan's airport, prompting the suspension of flights across several Iranian airports.

Concerns within the market regarding potential retaliatory actions by Israel caused oil prices to rebound from three-week lows, with Brent Crude climbing 3 percent to surpass $90 per barrel and WTI Crude surging over 3 percent to reach $85.75 per barrel.

"Due to geopolitical issues and ongoing conflict in the Middle East, there's pressure on oil prices in the medium to short term. We need to monitor how these issues escalate in the coming weeks, as they could lead to sentiment impacts and supply disruptions. While short-term effects are significant, long-term prospects for oil prices appear bearish," said Kranthi Bathini of Wealthmills Securities.

Analysts said market trends have turned negative since yesterday afternoon. Although the morning showed a positive trend, markets consolidated in the afternoon. Oil prices are expected to negatively impact Indian markets, with the Nifty struggling around 22,000. We'll need to observe market reactions to Infosys results, as earnings season is crucial, they added.

Rohit Srivastava, founder of Indiacharts, said after the recent correction, oil is expected to hold support around $82 a barrel, with potential to rise above $90. There are various factors driving this such as lower interest rates, increased demand, and geopolitical tensions. Rising oil prices will further impact inflation and bond yields, influencing market concerns. While oil's impact on market opening is significant, Infosys news is also influencing the investor sentiment. Immediate reactions may be driven by the IT sector dynamics, while oil's effects could play out over a longer period.

"The immediate support is at 21,970. That is the level that was touched on April 18. And that is what we will be watching today whether it holds or not. if it holds, there is a case for a short-term bounce. When I say short-term bounce which happens even in a larger downtrend. But we do expect that eventually you will take 21,970 and in the coming weeks head towards 21,100-21,200", Shrivastava said.

Year-to-date, crude prices have risen due to escalating hostilities in the Middle East and OPEC+ supply cuts, as the region plays a significant role in global crude production. Sustained high energy prices could increase global economic risks, posing challenges for central bankers.

Prashanth Tapse of Mehta Equities said the markets were anticipating the escalation to further heat up the Middle East standoff. With the Nifty’s immediate downside risk seen at 21,710 mark and any close below this can trigger down to 21,500 levels with low probability. Heading of Israel and Iran would keep markets very volatile but at 21,700 levels India can be a buy on dip markets.

"Crude and gold would remain high in this scenario and  that would keep equities under pressure in the shorter term. In anticipation of the near to end of this geopolitical crisis we remain optimistic about India. We are in a high season of earning seasons which would drive the market trends. We advise traders and investors to stay light and watch and watch before going to take aggressive  trades. The Nifty below 21,600 will be an important breakdown and trigger level for more pressure," Tapse said.

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