Oil Prices Surge Over $1 Amid Escalating Tensions in the Middle East: Key Insights and Market Implications
On 2 October, 2024, oil prices surged by more than a dollar as tensions in the Middle East increased further, following Iran’s unleashing heavy military attacks against Israel.
Brent crude futures rose $1.08, or 1.47%, to $74.64 a barrel, while U.S. West Texas Intermediate, or WTI, crude climbed to $70.95 at 0650 GMT after adding $1.12, or 1.6%. The two crude benchmarks had jumped more than 5% during a trading session on Tuesday.
Analysts point to initial market concern over a weakening global outlook for fuel demand as the reason behind this move. Priyanka Sachdeva, senior market analyst at Phillip Nova, said:
“The market quickly got off and shifted its focus from fears of a weakening global outlook for fuel demand to the specter of potential oil supply disruptions in the Middle East, following Iran launching a ballistic missile attack on Israel.”
Iran stated that it was in response to perceived provocations and said that it would stop further military attacks unless Israel unleashed a counterattack.
According to reports, the missile attack launched over 180 ballistic missiles that threatened both Israel and the U.S. with retaliation strikes on Iran. Tehran issued a warning that a response from Israel would lead to “vast destruction” while ratcheting up fears of an even greater full-scale war in the Middle East.
The United Nations Security Council held an emergency session on the Middle East issue, while the European Union called for an immediate ceasefire, signaling the international community’s alarm at the intensifying situation.
Therefore, the involvement of Iran in the conflict is very scary, considering that it is one of the member countries of OPEC and an oil-producing nation that in recent times has amplified its crude output. Analysts from ANZ say that August oil production in Iran reached the highest level in six years-3.7 million barrels per day.
In that regard, the potential for remarkable disruptions in the global provision of oil would be considered, since it produces a good 4% of the world oil. Capital Economics argued that a serious confrontation with Iran might well threaten to consume the U.S.
All this put a ministerial panel of OPEC+ on the dock a few hours later to discuss the oil market situation. The market, however, did not expect any policy decision and was merely looking at any word on production levels.
The cartel, led by Russia, will increase its production by 180,000 barrels a day from December, and anything more than that would ease the jitters of supply shocks.
The US oil inventory data also had an impact on the mood of the investors. Crude and distillate inventories declined, while the gas ones increased, showing a mixed result from the American Petroleum Institute data.
So, the call for varied demand levels in the different types of fuels further complicates their outlook on oil prices.
Investors will also be looking for Friday’s U.S. jobless claims figures, whose outcome may alter expectations about the monetary policy of the Federal Reserve. Favorable data would be indicative of a better economy, which itself would regain aggregate economic activities, hence positively impacting long-term oil demand.
According to Sachdeva, it is on these aspects that investors would keenly be observing and asking for direction and an indication of the prospect of going further with the oil price.
Overall, the fresh surge of tensions in the Middle East has created a very unstable oil market with prices further spiraling upwards due to dominated concerns over potential supply disruptions.
Days ahead would be important from the perspective of the international community and review by OPEC+ in terms of strategy response, so that this geopolitical ordeal is completely assessed through its impact on the oil market.
