Oil markets rattled by fears of escalating conflict in Middle East
Oil prices will begin trading tomorrow following a sharp surge in prices, with investors spooked by the prospect of further conflict in the Middle East, with Israel mobilising for military operations in Gaza on Sunday.
Brent Crude has posted its highest weekly gain since February, rising 7.5 per cent, while WTI Crude also soared 5.9 per cent over the same period.
This was fuelled by bumper growth on Friday with Brent Crude climbing 5.7 per cent to $90.89 per barrel last Friday, while WTI Crude spiked 5.8 per cent to $87.69 per barrel over the same trading session – the highest daily gains across both major benchmarks since April.
It follows escalating conflict in the Middle East with Israel ramping up military action in response to Hamas’s attack on Sderot – with over 1,000 people murdered in raids earlier this month.
Over 1m people in Gaza have been ordered by Israel to leave the northern half of the territory within 24 hours – while Hamas has told them not to go – to escape an upcoming assault from sea, land and air in the territory.
While Israel is not a major fossil fuel producer, investors appear wary of the conflict spiralling and drawing in neighbouring countries from the world’s largest oil producing region.
One area of focus is whether Iran is drawn into the conflict – with over 2,000 casualties reported already in Gaza – leading to the prospect of more Western sanctions and supply restrictions.
Iran’s Oil minister Javad Owji expects prices to reach $100 per barrel due to the current situation in the Middle East, according to news agency Reuters.
The country’s foreign minister Hossein Amirabdollahian also discussed the Israeli-Hamas conflict with the head of Hezbollah on Friday, which has previously launched its own cross-border attacks on Israel.
There are also concerns that plans to normalise relations between Saudi Arabia and Israel could be hampered, which could scupper expectations of Saudi Arabia raising output to appease the US.
Commerzbank has raised its price forecast for a barrel of Brent at year’s end from $85 per barrel to $90 per barrel.
Commodity analyst Carsten Fritsch said: “More oil appears to have been reaching the global market from Iran of late because the US in particular has apparently stopped enforcing its sanctions against the country’s oil sector as strictly as before. This will probably change now, however.”
The prospect of sanctions follows the US imposing its first penalties on owners of tankers carrying Russian oil priced above the G7 price cap of $60 per barrel.
Fiona Cincotta, senior financial markets analyst at City Index said: “Supply remains in focus after the US imposed sanctions on owners of tankers carrying Russian oil priced above the G7 price cap of $60 a barrel. The sanctions are part of an ongoing drive to punish Russia for its invasion into Ukraine.”