Europe market jitters ease despite ongoing Middle East tensions

LONDON (ICIS)–Chemical stocks in Europe have firmed in line with the general market in midday trading on Monday, as oil prices subsided and investor unrest eased despite ongoing tensions in the Middle East.

Asia-Pacific equities had tumbled in earlier trading on the back of growing hostilities over the weekend after Iran launched ordinance into Israeli airspace late on 13 April.

The Israel Defence Force (IDF) confirmed the attack, with Rear Admiral Daniel Hagari stating in a briefing on Sunday that none of the 170 drones launched from Iran had entered Israeli airspace, and fighter jets mobilized to intercept cruise and ballistic missiles had shot almost all of them down.

The handful of ballistic missiles that crossed into Israeli territory were intercepted and fell at the Nevatim airbase in the south of the country, but damage to infrastructure was limited and the base is currently operational, he added.

Lingering unease from the attack, and the potential for an Israel-Iran conflict to escalate further bled into early Monday trading, with Hong Kong’s Hang Seng index and Japan’s Nikkei 225 index closing down 0.72% and 0.74% respectively.

Taiwan and India felt the chill more keenly, with the Taiwan SE and Bombay Sensex bourses closing down 1.38% and 1.14% respectively.

European bourses were less unsettled on Monday, with Germany’s DAX and France’s CAC 40 trading up 1.01% and 1.09% respectively, while the UK FTSE 100 was little changed at 13:10 BST.

European chemicals stocks moved higher on Monday, with the STOXX 600 chemicals index trading up 0.34% from Friday’s close, with Solvay, Evonik and Arkema among the biggest gainers.

The decline in oil prices also deepened from earlier in the day, with the value of Brent crude June futures dropping 87 cents to $89.58/barrel in noon trading.

The fall in crude values represents a decline in the overall risk premium priced in at present in response to Middle East tensions, but they are a long way from a more comprehensive rollback. Oil prices have increased by over $8/barrel since mid-March.

Crude and downstream pricing as of 12:00 BST Monday

Product	Latest	Previous	Change
Brent June	89.58	90.45	-0.87
WTI May	84.74	85.66	-0.92
Naphtha	677.00	695.00	-18.00
Benzene	1203.00	1205.00	-2.00
Styrene	1800.00	1815.00	-15.00

An attack from Iran had been threatened for weeks following a strike on its embassy in Damascus, Syria.

The fact that the response was telegraphed in advance, consisted largely of slow-moving drones and resulted in little damage and no fatalities, has reassured markets that there is scope for a de-escalation.

“The fact that there was limited damage and no loss of life may also provide some comfort to the market, as it may mean a more measured response from Israel,” said ING analysts in an oil market note issued on Monday.

Iran said it considers the conflict concluded and US diplomats are reportedly urging restraint in Israel, but further salvos, which will represent Iran’s first direct attack on Israel, means that tensions could rapidly intensify.

“The US and allies are pushing for a diplomatic response, while the risk is that hardliners within the Israeli government push for a more aggressive response,” ING added.

Multiple western governments have officially condemned Iran for the attack which took place on the same day that Iran’s Revolutionary Guard Corps seized a ship passing along the Strait of Hormuz, according to data provider Xeneta.

Any moves to sanction Iran or measures that could restrict the country’s flow of oil into global markets could tighten supplies in the short term, ING added.

Focus article by Tom Brown

Thumbnail photo: The bell ceremony at the Euronext exchange in Brussels, Belgium. Source: Shutterstock