Oil: A Critical Global Commodity - What Most Investors Own on EasyEquities!

Oil is a commodity that plays a crucial role in the global market, given its use in products like fuel, plastics, chemicals, and various industrial applications. The price of oil impacts transportation, manufacturing, and economies.

As a widely traded commodity, oil supply and demand are influenced by factors such as geopolitical events, technological advances, and environmental policies, making it one of the most critical and volatile assets in the global market.

Middle East Tensions and Escalating Risks

On Tuesday, Iran launched ballistic missiles at Israel, most of which were intercepted by Israeli defenses. However, this has escalated the likelihood of direct war between the two nations. Iran's Revolutionary Guards stated that the attack was in retaliation for the recent assassinations of Hamas leader Ismail Haniyeh in Tehran and Hezbollah leader Hassan Nasrallah near Beirut by Israeli forces. The region now waits anxiously for Israel's response.

This escalation has raised fears of a broader Middle East conflict, with the risk of an all-out war in the region growing. Traders are concerned that Israeli strikes on Iran’s oil infrastructure could disrupt global supplies and further boost oil prices. Experts have likened the situation to a precarious game of Jenga, where one wrong move could trigger a collapse.

Oil Prices Surge Amid Conflict Concerns

On Thursday, oil prices continued to rise as concerns over a potential widening of the Middle East conflict, which could disrupt crude flows from key exporting regions, overshadowed a stronger global supply outlook. According to OPEC (Organization of the Petroleum Exporting Countries), 79.1% of the world’s proven crude oil reserves are located in OPEC member countries, with the majority (67.3%) concentrated in the Middle East.

Here’s a visual that shows the OPEC members' trade:

Higher oil prices can drive up costs for goods and services, complicating efforts to combat inflation. This often leads to higher interest rates and a decline in the share prices of companies sensitive to high inflation environments. While rising operational costs hurt most companies' stock performance, energy companies typically benefit from increased profits.

Energy Stock Performance Amid Rising Oil Prices

The U.S. stock heatmap on Thursday showed most shares in red, while energy (oil and gas) stocks were in the green.

Energy Stock Performance

Occidental Petroleum Corp, Imperial Oil Ltd, Cenovus Energy Inc, HF Sinclair Corporation, and CVR Energy Inc were among the energy stocks that experienced share price growth of up to 6% by the end of Thursday's trading session.

In the local market, Sasol Limited (one of the most widely held stocks on EasyEquities) also edged higher following the rise in oil prices.

It’s also worth noting that higher oil prices over longer periods could lead to higher dividend payments, which may result in further share price increases.

Market Outlook: Volatility Ahead

Past performance does not guarantee future returns. A market strategist noted that despite some calm, the market remained wary of any Israeli response, with attention focused on whether Iran's energy infrastructure would become a target. Israel's recent strike on Beirut, following Iran’s ballistic missile attacks, has heightened geopolitical risks. However, analysts doubt Israel will target Iran's oil facilities, as this could push prices to levels uncomfortable for its allies.

Despite the turmoil, U.S. crude inventories rose by 3.9 million barrels, suggesting a well-supplied market capable of withstanding disruptions. ANZ analysts highlighted this, adding to evidence that global supplies remain robust. Investors seemed unfazed, as OPEC's spare capacity could cover any potential loss of Iranian supply, although concerns persist about the region's broader energy infrastructure. UBS analyst Giovanni Staunovo warned that renewed attacks on facilities in Gulf countries could strain OPEC's ability to compensate for further disruptions.

Gold's Appeal as a Safe-Haven Asset

On the other hand, gold and gold mining are often seen as hedges during geopolitical instability, as demonstrated by the recent Middle East crisis. Tensions, such as missile attacks between Iran and Israel, have boosted gold's safe-haven appeal. However, strong economic data, such as robust U.S. labor reports, can limit this by reducing the likelihood of central banks easing monetary policy. This balance shapes gold's appeal as both a hedge and an asset.

The festive season and December are around the corner, a period when travelers and tourists often make their way to holiday destinations. Investors may view this as a market opportunity, as money starts flowing into the tourism sector.

The year 2024 is poised to become a landmark moment in history, with over 2 billion people worldwide preparing to cast their votes in elections spanning countries like the US, India, the European Union, Mexico, and South Africa, as highlighted by the World Economic Forum.

As countries return to work to ensure food security while working on the energy transition: there are potential opportunities in the electric vehicle (EV), energy supply, and fertilizer sectors.