Oil eases, equities rise as market focuses on Strait of Hormuz

Oil prices pulled back and equities rose on Monday as investors focused on the crucial Strait of Hormuz and the head of the IEA said more crude could be released on the market if necessary.

As the Middle East war entered its third week, Wall Street and most European stock markets climbed after Asian stocks mainly dipped.

International benchmark Brent North Sea crude dropped back 1.3 percent to $101.84, while the main US contract West Texas Intermediate fell 3.5 percent to $95.27.

The price falls came after a Pakistani oil tanker became the first non-Iranian tanker to transit the Strait of Hormuz with its automatic transponder system activated, according to monitor Marine Traffic.

"The impact of geopolitical events on markets, and the macro outlook, hinges more on when transits through the Strait of Hormuz begin to normalise than it does on when hostilities come to an end," wrote Michael Brown at Pepperstone.

Meanwhile, the head of the International Energy Agency, Fatih Birol, said member countries could unlock more oil from strategic stocks "if needed". 

IEA member countries already agreed last week their biggest-ever release, of 400 million barrels.

"When you get a bit of a reprieve in the energy price, it's not surprising to see a bounce in equity markets," Art Hogan, from B. Riley Wealth Management, told AFP.

US President Donald Trump piled pressure on allied powers over the weekend to help reopen the vital shipping lane choked off by Iranian attacks, although the call has not found an enthusiastic response.

"The market, again, appears to be leaning on the notion that the war will come to an end relatively soon without much lasting damage to the global economy," said Briefing.com analyst Patrick O'Hare.

"Therefore, a buy-the-dip trade has taken root," he added.

In Asia, Tokyo and Shanghai closed lower, while Hong Kong rose.

During Asian trading hours, crude had climbed further above $100 a barrel after attacks on oil infrastructure on the UAE's east coast and strikes on Iran's Kharg Island.

Iran's Foreign Minister Abbas Araghchi told CBS his country was not interested in talks with Washington, but was ready to speak to countries about safe passage through the Strait of Hormuz.

More strikes occurred Monday, with Saudi Arabia saying it had intercepted more than 60 drones since midnight, while flights were temporarily suspended at Dubai's airport after a "drone-related incident" sparked a fire nearby. 

Traders' attention will turn this week to policy meetings of major central banks including the US Federal Reserve, Bank of England, the European Central Bank and the Bank of Japan. 

While they are expected to keep interest rates unchanged, any remarks on the impact of the war and rising energy prices on their respective economies will be closely followed.

"Investors want to hear what the world’s central bankers think about a potential inflation shock and a prolonged energy crisis and how this feeds into their future decision making," said Kathleen Brooks, research director at trading group XTB. 

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War in the Middle East: latest developments

- Key figures at around 1630 GMT -

West Texas Intermediate: DOWN 3.5 percent at $95.27 per barrel 

Brent North Sea Crude: DOWN 1.3 percent at $101.84 per barrel

New York - Dow: UP 0.6 percent at 46,831.02 points

New York - S&P 500: UP 0.8 percent at 6,683.37

New York - Nasdaq Composite: UP 1.0 percent at 22,326.20

London - FTSE 100: UP 0.6 percent at 10,317.69 (close) 

Paris - CAC 40: UP 0.3 percent at 7,935.97 (close)

Frankfurt - DAX: UP 0.5 percent at 23,564.01 (close)

Tokyo - Nikkei 225: DOWN 0.1 percent at 53,751.15 (close)

Hong Kong - Hang Seng Index: UP 1.5 percent at 25,834.02 (close)

Shanghai - Composite: DOWN 0.3 percent at 4,084.79 (close)

Euro/dollar: UP at $1.1480 from $1.1416 on Friday

Pound/dollar: UP at $1.3292 from $1.3223

Dollar/yen: DOWN at 159.32 yen from 159.74 yen

Euro/pound: UP at 86.37 pence from 86.33 pence

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