Oil Prices Sink as shale concern lingers and Syria fears subside

Oil prices dropped and government bonds weakened on Monday, after the US and Russia avoided any direct military engagement during an American-led strike in Syria.

Having last week breached the $73 a barrel mark for the first time since late 2014, Brent crude fell as much as 2% in London trading. US Treasuries — an asset that investors typically turn to during periods of geopolitical tension — were also under pressure, with the yield on the two-year note touching the highest in 10 years.

The oil price had risen nearly 10% in the run-up to the strikes, as investors bulked up on assets, such as gold or U.S. Treasuries, that can shield against geopolitical risks

The prospect of the US and its allies launching a military strike against the Syrian government helped drive the oil price higher late last week. Investors feared a strike risked a clash with Russia that is supporting the government of Syrian president Bashar al-Assad, who is accused of a chemical weapons attack.

Seems like the market hope is that the fact that the Syrian air strikes were targeted and that Russia haven’t further inflamed the rhetoric so far, means that we can slowly move on.

The yield on the two-year Treasury note rose 2 basis points to 2.38%, the highest level since 2008. That was echoed across other major government bond markets, with the yield on the 10 -year German Bund rising 3bp to 0.54%, the yield on the equivalent 10-year UK gilt up 4bp at 1.47% and the French 10-year yield climbing 3bp to 0.77%.

The speed with which the oil price on Monday relinquished gains made in the run-up to the military action on Saturday reflects a broader pattern of how crude has reacted to tensions in the Middle East over the past two decades, analysts say.