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Risk-off sentiment prevails following Saudi oil field attack

Saudi Arabia’s oil field attacks sparked a new round of profit-taking in global equities, due to rising geopolitical risk and higher energy prices.

Investors and traders woke up on Monday seeing crude oil prices jump over 10% after two core oil fields in Saudi Arabia had been attacked by co-ordinated drones over the weekend. This is expected to slash global crude oil supply by 5%, causing a supply shortage and rising geopolitical uncertainty. The attack revealed the fragility of key infrastructure facilities against rising technology such as weaponized drones. How the United States and Saudi Arabia deal with the situation will be closely watched.

In the markets, sentiment turned sour this morning as oil prices advanced alongside with precious metals and Japanese Yen. US equity futures lost about 0.6% and Asian futures are positioned to open broadly lower. Higher oil prices are probably going to stay for a while until Saudi Arabia restores capacity and proper measures are implemented to prevent such cases from happening again.

In Singapore, the energy and oil related sector may outperform the benchmark, although the broad risk off sentiment is likely to put pressure on other sectors. Amid rising geopolitical uncertainties, defensive counters such as utilities, healthcare and consumer staples are more resilient against external headwinds.

If higher oil prices are here to stay, Asia’s oil reliant economies such as China, Japan, India, South Korea and the Philippines will start to feel the pain as higher energy and raw material prices add on the cost burden. Korea Won and Singapore dollar are trading lower against the USD at opening and other emerging market currencies are likely to open lower as well.

Brent oil price gapped up on Monday morning to as high as US$ 72.0 before coming off at US$ 68.0. Significant volatility is expected today due to a lack of liquidity at Asian hours and knee-jerk reactions. Last closing price of US$ 60.6 and today’s high of US$ 72.0 defined a sufficient wide range for Brent to trade within today. Drawing a Fibonacci Retracement between these two points, it becomes clear that key support levels are found at US$ 67.6 (38.2%), US$ 66.2 (50%), US$ 64.8 (61.8%) and US$ 63.1 (76.4%) respectively.


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