Reports Stack News and Updates
Oil prices surged by over 3% on the third day of the Israel-Hamas conflict, which was initiated by a surprise attack on Israel by Palestinian militants belonging to Hamas. The global benchmark Brent saw a 3.6% increase, reaching $87.63 per barrel, while U.S. West Texas Intermediate futures rose by 3.7%, reaching $85.85 per barrel.
During the early hours of a Saturday, coinciding with a significant Jewish holiday, the Palestinian militant organization Hamas initiated a coordinated infiltration into Israel using multiple methods, including land, sea, and paragliders in the air. This attack followed a barrage of thousands of rockets launched from Gaza into Israel. As of the time of this report, NBC News has indicated that at least 700 Israelis have tragically lost their lives. Simultaneously, the Palestinian Health Ministry has documented 313 fatalities on the Palestinian side.
Although there has been a notable increase in crude prices, analysts are of the opinion that this is likely a short-lived and reflexive response. Vivek Dhar, the Director of Mining and Energy Commodities Research at Commonwealth Bank, expressed the view that, for this conflict to exert a lasting and substantial influence on oil markets, there needs to be a consistent decrease in oil supply or transportation.
In a daily note, he further emphasized, “Otherwise, as history has demonstrated, the initial positive reaction in oil prices tends to be short-lived and susceptible to the influence of other market dynamics.” He also noted that the ongoing conflict does not directly jeopardize any major sources of oil supplies, as neither side involved is a significant player in the oil industry. Israel, for instance, possesses two oil refineries with a combined capacity of nearly 300,000 barrels per day, but the U.S. Energy Information Administration reports that the country has “virtually no crude oil and condensate production.” Similarly, data from the EIA indicates that the Palestinian territories do not produce any oil. However, it’s essential to recognize that the conflict is unfolding in close proximity to a crucial oil-producing and export region that serves global consumers.
Iran, a significant oil producer, looms prominently on the market’s immediate radar. Vivek Dhar stated, “If Western countries officially establish a connection between Iranian intelligence and the Hamas attack, it could pose immediate downside risks to Iran’s oil supply and exports.” Oil exports from Iran have been constrained since former U.S. President Donald Trump’s withdrawal from the nuclear agreement in 2018, which led to the reinstatement of sanctions aimed at reducing Tehran’s revenue.
Citi, in a note, added, “Under the influence of U.S. encouragement and clandestine nuclear negotiations, Iran witnessed a substantial increase in oil exports and production, growing from around 600,000 barrels per day to 3.2 million barrels per day between the end of 2022 and mid-2023.”
There are apprehensions that the conflict might expand into the broader region. Henning Gloystein, the Director of Energy, Climate, and Resources at Eurasia Group, voiced concerns in an email to CNBC, stating, “There’s also a risk of the conflict escalating regionally. If Iran becomes involved, it could potentially lead to supply disruptions, although we haven’t reached that point yet.”
Additionally, the Lebanese militant organization Hezbollah has reported launching attacks on three locations within the Shebaa Farms—a territory situated at the crossroads of the Lebanese-Syrian border and the Israeli-occupied Golan Heights.
Josh Young, the Chief Investment Officer (CIO) at energy investment firm Bison Interests, believes that the enforcement of sanctions on Iranian exports by the U.S. could have a significant impact on the oil market. He forecasts, “I think it’s reasonable to expect oil prices, let’s say, to increase by approximately $5 per barrel for WTI.”
Bob McNally, the President of Rapidan Energy Group, highlights the potential for a significant rise in oil prices due to a conflict between Israel and Iran. He suggests that with 40% of global exports passing through the strategically vital Strait of Hormuz, such a conflict could easily lead to an increase of $5 to $10 in oil prices. The Strait of Hormuz, located between Oman and Iran, is widely regarded as the world’s most crucial chokepoint for oil transit.
However, it’s not just Iran that investors need to monitor closely. McNally, speaking on CNBC’s “Street Signs Asia,” suggested that crude prices could potentially surge to even higher levels if the Lebanese militant group Hezbollah becomes involved. He stated, “The situation could become significantly more challenging for the oil market and lead to a much more substantial price spike if there is a belief that the conflict could extend to involve Hezbollah in Lebanon.”
U.S. Secretary of State Antony Blinken acknowledged on Sunday that there had been “limited firing” between Hezbollah, based in Lebanon, and Israel. He added, “As of now, it’s relatively calm, but it’s a situation we are closely monitoring.”
