Brent prices posted their biggest daily surge on record this morning, while broader markets shifted to risk off on heightened fears that flaring Mideast tensions and surging oil costs will weigh on a struggling global economy.
A concerted drone attack—claimed by Iran-backed Yemenite Houthi rebels—knocked out half of Saudi Arabia’s oil facilities on Saturday and 5% of the global supply after crippling the world's biggest crude oil processing plant.
U.S. Secretary of State Mike Pompeo characterized the attack as targeting the global oil supply. Pompeo also denounced Iran for pretending “to engage in diplomacy” and said the country will be "held accountable for its aggression." The U.S. administration released satellite images showing the attack would have been more easily carried out from either Iran or Iraq. President Donald Trump followed up with a tweet of his own, saying the U.S. is “locked and loaded depending on verification.”
Iran denied accusations, calling the U.S. deceitful and declaring it was ready for a “full-fledged war.”
Brent futures jumped almost $12 at the open, or nearly 20%, the biggest price leap since 1988—when the global benchmark launched—after the largest supply-disruption shock ever.
Prices later pulled back to about 8% higher by late European morning, but were still heading for the biggest advance in almost three years. Technically, the price gapped above the downtrend line since April 25.
From a technical perspective, the hourly price completed a double top and fell below its uptrend line since Sept. 3, and is now struggling to climb back above the neckline.
Europe's STOXX 600 halted a four-day advance following a mixed session in Asia.
Here, Japan’s Nikkei (+1.05%) outperformed. Hong Kong’s Hang Seng dropped 0.83% and China’s Shanghai Composite held relatively steady (-0.02%) after Chinese industrial production figures missed the monthly forecast, adding to signs the country’s economy is slowing down.
In the bond market, the yield on 10-year Treasurys took a dive, paring a 30% gain—to a six-week high—from the Sept. 3 bottom. From a technical standpoint, the slip was facilitated by the rate nearing the downtrend line resistance since November 2018.
Gold has been developing a small H&S top. While market turbulence is showing signs of easing, if geopolitical tensions increase, the yellow metal is likely to flip its market dynamics, propelling prices past the Sept. 4 high of $15,57.09, to extend the uptrend.
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