On Monday, oil prices surged past the peak of last week due to increasing worries about a looming conflict in the Middle East. Brent crude, the worldwide oil standard, ascended to an impressive $79.94 (€72.79) per barrel, a 2.4% increase. This was in response to the rocket attacks from Hamas on Israel, countered by Israeli retaliatory actions in Lebanon and Gaza.
The oil value, which experienced a sharp decrease since early April, saw a week-on-week growth of more than 8% last week, marking the highest increment since January 2023. This surge was propelled by Iran’s missile assault on Israel.
Traders are expressing growing concern about a possible strike on the energy infrastructure in the Middle East, which could significantly impede oil supply or cause an upheaval in the Strait of Hormuz.
Evidence shows that hedge funds, once betting on a further fall in this year’s oil prices, are re-evaluating their stance. Throughout the course of last week’s rally, these funds cut their large short placed bets against Brent and have increased their long positions as of October 1st, according to the data from the Intercontinental Exchange (ICE).
Algorithm-based funds that bet on market trends, however, were likely still placing bets against oil as late as Thursday, as indicated by the model portfolio run by Société Générale.
Israel commemorated the first anniversary of the lethal October 7th attack by Hamas on Monday. This was mirrored by ceremonies held in Southern Israel which were interrupted by rockets fired at the region from Gaza. Additionally, rockets provoked sirens in Tel Aviv.
These episodes seem to follow a new offensive by Israeli forces in Northern Gaza, leading to clashes between ground troops in Lebanon and Hizbullah, an Iran-proxy.
Last Thursday, US President Joe Biden stated that Israel had contemplated an attack on Iran’s oil infrastructure as recompense for Iran’s missile attack on them. However, he later proposed that Israel weigh other counteractions. Mr Biden recommended on Friday, “If I were in their position, I’d consider alternatives to attacking oil fields.”
The Islamic Republic is known to export around 1.7 million barrels of oil on a daily basis, with the main exportation point being a terminal located on Kharg Island, positioned approximately 25km away from the southern coast of the country.
This information was disclosed by Daan Struyven, who works as an analyst for Goldman Sachs. In his communication with clients, he painted a potential scenario of a six-month disruption that might affect around 1 million barrels per day. Such a situation, he predicts, could drive the price of Brent up to $85 by mid-next year, if Opec decides to compensate for the resulting deficiency. However, he estimated that prices could surge to the mid-$90s if there was no such offset.
Struyven additionally warned investors about the increasing focus on the potential risk of a conflict escalating between Israel and Iran. He predicted that this could potentially develop into a sequence of reciprocated attacks that could spark a larger conflict. – Copyright The Financial Times Limited 2024.