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Global oil prices rally, stocks drop on fears of broader Middle East war

Crude futures briefly vaulted three percent higher as fears grew over broadening unrest that could destabilise the crude-rich Middle East.

Reuters Archive

Some analysts are predicting a possible return to $100 oil, while gold hit a four-week peak as investors seek a safe haven investment. / Photo: Reuters Archive

Oil prices have rallied and global stocks mostly fell on fears that the Israel-Hamas conflict could spill over into a regional war after a strike at a Gaza hospital.

Crude futures briefly vaulted three percent higher on Wednesday as fears grew over broadening unrest that could destabilise the crude-rich Middle East with some analysts predicting a possible return to $100 oil, while gold hit a four-week peak as investors sought the safe haven investment.

"Last night's explosion at a Gaza hospital, which killed hundreds, has raised the stakes of the conflict and, according to some analysts, reduced the chances of a negotiated solution," said ActivTrades analyst Ricardo Evangelista.

He estimated there is now a higher probability that other countries in the region, such as Iran, could end up involved in the dispute.

"This scenario would almost certainly affect the global oil supply and could drive the price of the barrel to levels above the $100 mark," he added.

Global markets waver as investors keenly watch diplomacy on Mideast crisis

Optimism crushed

World stock markets had enjoyed a healthy run Tuesday on optimism the crisis could be contained even as Israeli Prime Minister Benjamin Netanyahu prepared for a ground invasion in the blockaded territory.

Biden had planned to visit Israel on Wednesday to meet with Netanyahu and then travel on to Jordan for a meeting with Jordanian King Abdullah II, Palestinian leader Mahmud Abbas and Egyptian President Abdel Fattah el Sisi on finding possible ways to de-escalate the conflict.

But news that at least 500 people had been killed at the hospital saw the Arab leaders cancel the summit in Amman and fanned concerns of a regional conflagration, with Iran warning this week that a wider war was becoming "inevitable".

There was an increase in fighting between Israeli troops and Hezbollah on the Lebanon border.

European markets fell across the board with London also dented by news of stubbornly high UK inflation.

Asian markets mostly dropped, with Hong Kong, Shanghai, Singapore, Mumbai, Jakarta, Taipei and Manila all down.

Sydney, Seoul, Wellington and Bangkok edged up. Tokyo was flat.