Investing

Oil prices climb amid Middle East conflict fears, but global supply limits gains

Pinterest LinkedIn Tumblr

The escalating conflict in the Middle East sent oil prices higher on Thursday, as traders kept a close eye on potential disruptions in crude flows from the region.

However, a robust global supply outlook helped limit significant price surges.

By early Thursday morning, Brent crude futures had climbed 80 cents, or 1.08%, to reach $74.70 a barrel. US West Texas Intermediate (WTI) crude also saw a rise, gaining 85 cents, or 1.21%, to settle at $70.95 per barrel.

Market participants remain cautious about the ongoing hostilities between Israel and Iran-backed Hezbollah in Lebanon.

“Following the initial jitters from geopolitical risks in the Middle East, we have seen some calm return to global markets,” Yeap Jun Rong, a market strategist at IG, told Reuters.

But of course, with market participants still keeping a side-eye on any upcoming Israeli response.

Tensions in the Middle East Escalate
The situation in the Middle East worsened after Israel conducted airstrikes in central Beirut early Thursday, killing six people.

The strike followed a deadly day for Israeli forces on the Lebanese front, in their continued clashes with Hezbollah.

The violence escalated further after Iran fired over 180 ballistic missiles at Israel the previous day, pushing the conflict beyond the borders of Israel and Palestine into Lebanon and Syria.

“The question for oil now is whether Iran’s energy infrastructure will be in Israel’s crosshairs,” Yeap added, raising concerns about a possible Israeli strike on Iran’s oil facilities.

Tony Sycamore, an IG market analyst, commented on the potential impact of further military action.

“It’s a waiting game to see what Israel’s response will be,” he said.

But I doubt that Israel will target Iranian oil infrastructure, as such a move would likely push oil prices toward $80, which could face resistance from Israel’s allies fighting inflation.

Rising US oil inventories keep prices in check

Even as geopolitical tensions lifted prices, data from the U.S. Energy Information Administration showed a build-up in crude inventories, tempering some of the market’s concerns.

US crude inventories increased by 3.9 million barrels in the week ending September 27, reaching a total of 417 million barrels.

This far exceeded the expected 1.3 million-barrel draw, as forecasted in a Reuters poll.

“Swelling U.S. inventories added evidence that the market is well supplied and can withstand any disruptions,” analysts from ANZ said in a note, providing further reassurance to investors.

Global supply still sufficient despite conflict

Despite the heightened tensions, global oil supplies remain steady for now. Investors remain largely unfazed, as no significant disruptions to crude exports from the Middle East have occurred so far.

OPEC’s spare capacity also offers a buffer against potential supply shortages, according to Jim Simpson, CEO of East Daley Analytics.

“After Iran’s attack, prices may stay elevated or remain more volatile for a little longer, but there’s enough production, there’s enough supply in the world,” he told Reuters.

OPEC’s surplus capacity could absorb the impact of a complete loss of Iranian supply if Israel were to target the country’s oil infrastructure.

However, analysts warn that the situation could change quickly if Iran retaliates by attacking oil installations in neighboring Gulf states.

“The effectively available spare capacity might be much lower if renewed attacks on energy infrastructure in the region occur,” noted Giovanni Staunovo, an analyst at UBS.

As the situation unfolds, oil markets remain on edge, with both geopolitical risks and supply factors keeping prices from swinging too far in either direction.

The post Oil prices climb amid Middle East conflict fears, but global supply limits gains appeared first on Invezz