Oil prices surge after Hamas attack on Israel raises supply fears
Oil prices have spiked amid growing political uncertainty in the Middle East, and concerns over supply shortages, following Hamas’s attack on Israel.
Both major benchmarks jumped more than $4 per barrel before easing slightly in early morning trading.
Brent Crude is currently up 3.5 per cent, rising to $87.55 per barrel, while WTI Crude has climbed 3.8 per cent to $85.94 per barrel.
The surge in oil prices has reversed last week’s decline — the largest since March — when Brent Crude and WTI Crude fell back 11 per cent and eight per cent respectively, weighed down by concerns of higher interest rates and weakening demand.
This was powered by a continued hawkish approach from the US Federal Reserve in its efforts to tackle inflation and sluggish economic growth in China since it lifted pandemic restrictions earlier this year.
However, there are now fresh supply concerns — with fears that Hamas’s attacks could threaten diplomatic talks between Saudi Arabia and Israel, with the two countries looking to normalise relations.
Reuters reported earlier this month that Saudi Arabia confirmed to the White House they would be prepared to raise output next year as part of any deal with Israel — following this winter’s swingeing output cuts.
There is also the possibility oil supplies could be further reduced if Iran cuts off supplies, with the country producing around 3 per cent of global output.
Iran’s foreign ministry has praised the attacks, and there are concerns over supplies passing through the Strait of Hormuz if the country enters the conflict — with 20 per cent of global supplies passing through the region.
Callum Macpherson, head of commodities at Investec, played down the prospect of an embargo on oil supplies – although he believed there could be “a renewed focus on sanctions and limiting Iranian output,” a sentiment which had been growing this year.
In his view, this was “the most obvious risk for oil” rather than a 1970s style embargo.
He said: “For a 70s style embargo by Arab oil states to occur, the Israeli response would need to seem to be very disproportionate with significant civilian causalities in Gaza and be supported by countries that an embargo would seek to punish.
“Even if that were a consideration for Arab oil producers, they will recall the demand shift that the oil shocks of the 70s brought about even then and given that the main source of oil demand – road transport – is now under serious threat from electric vehicles, imposing a 70s style embargo would be very high stakes game indeed.”
Craig Erlam, senior market analyst at Oanda, believed that prices would remain elevated beyond any spikes from supply concerns, due to to OPEC+’s output restrictions – already making up five per cent of global supplies.
He said: “Of course, the flip side of that is OPEC+ would have the capacity to offset that should they so wish, although there’s no guarantee that would happen under the circumstances and I’m just not sure traders have faith in the group to intervene when price is high and supply short in the way they have been so willing to do in the alternative scenario.”