Middle East tensions drive oil prices higher, with risks of supply disruption looming over global markets
US crude oil prices rose by about 5 percent on Thursday, marking the third straight day of gains.
Fears that Israel might retaliate for Tehran’s ballistic missile attack by striking Iran's oil industry drove the increase, as reported by CNBC.
When asked if the US would support such a strike, President Joe Biden responded, “We’re discussing that. I think that would be a little – anyway.” He added, “There’s nothing going to happen today.”
Daniel Ghali, senior commodity strategist at TD Securities, explained that Biden’s comments triggered the price surge. “Geopolitical risks in the Middle East are probably at their highest levels since the Gulf War,” Ghali told CNBC.
Earlier in the session, the US benchmark West Texas Intermediate (WTI) surged 5.5 percent to an intraday high of $73.99 per barrel. WTI is up about 8 percent this week, heading for its best weekly performance since March 2023.
Thursday’s closing energy prices were as follows:
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West Texas Intermediate’s November contract settled at $73.71 per barrel, up $3.61, or 5.15 percent. Year to date, US crude oil has gained nearly 3 percent.
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Brent’s December contract closed at $77.62 per barrel, up $3.72, or 5.03 percent. The global benchmark has risen nearly 1 percent this year.
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RBOB Gasoline’s November contract ended at $2.0926 per gallon, climbing 5.37 percent. Year to date, gasoline has declined by less than 1 percent.
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Natural Gas’ November contract finished at $2.97 per thousand cubic feet, up 2.91 percent. It has gained about 18 percent this year.
Claudio Galimberti, chief economist at Rystad Energy, noted that as conflict in the Middle East escalates, the risk of oil supply disruptions grows. However, he said, OPEC+ has significant spare crude capacity that could help mitigate supply concerns.
“This spare capacity is for now preventing runaway prices amid one of the deepest and most pervasive crises in the Middle East in the past four decades,” Galimberti explained in a note to clients.
Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, stated that OPEC+ could cover any disruption to Iran’s oil exports if Israel targets Iran’s infrastructure.
Yet, Schieldrop also warned that much of the world’s spare oil capacity is concentrated in the Middle East, particularly in the Gulf states, which could also be at risk if the conflict expands.
According to Schieldrop, if Israel strikes Iran’s oil industry, traders would likely become concerned about possible supply disruptions in the Strait of Hormuz, a key trade route for global oil shipments.
“That would add a significant risk premium to oil,” Schieldrop told CNBC’s ‘Street Signs Europe.’ He noted that oil prices could surge to $200 per barrel if Israel targets Iran’s oil infrastructure.
