Oil Estimated to Hit $100 on Israel-Hamas Conflict
Amidst pressures in the Middle East, analysts have started projecting that global oil prices would test $100 per barrel due to lingering conflicts between Israel and Hamas. There is the general expectation that the war would spread to other countries in the region if Israel continues to inflict pain on civilians.
Brent crude price settled above $92 per barrel on Friday, advancing for the second straight week, as the global oil market faces supply concerns amid the Israel-Hamas conflict that may spread in the Middle East.
For the most part of the week, Oil prices eased from $90 after the Islamist group Hamas released two U.S. hostages from Gaza while worries of war spreading across the Middle East remain.
Brent had plunged to $86 per barrel before a surge in demand from the United States and China pushed the price higher. The higher demand outlook eclipsed the Oil cartel production volume tightening, thus lifting the price curve upward for major oil grades.
However, West Texas Intermediate (WTI) crude oil closed lower for the first time in three sessions as the war, falling off early gains even as Israel’s war on Hamas continues.
WTI crude oil for November delivery closed down US$0.62 to settle at US$88.75 per barrel, while December Brent crude, the global benchmark, closed down US$0.22 to US$92.16. The drop came as Israel agreed to delay a ground offensive in Gaza in response to US pressure.
Still, the country’s war against Hamas is raising tensions in the wider Middle East, with Iranian-backed militias fighting Israeli forces at the Israel-Lebanon border, while a US naval destroyer on Thursday shot down missiles fired from Yemen.
Rising tensions come as supplies remain tight following OPEC+ quota reductions and Saudi Arabia’s one million barrel per day voluntary production cut.
The US President Joe Biden Administration lifted some sanctions on Venezuela in order to return some supply from the country with the world’s largest reserves after it agreed to freer elections, though it is likely to have limited impact.
“Treasury issued a six-month license that authorizes transactions in Venezuela’s oil sector, noting that the sanctions are designed to snap back if election progress is not made. While there have been some headlines forecasting a large resurgence of Venezuelan crude, market expectations are an incremental 200-300 kb/d,” Helima Croft, Head of Global Commodity Strategy and MENA Research at RBC Capital Markets, said in a note.
Lately, oil prices have been supported by expectations of a wider market deficit in the fourth quarter after top producers Saudi Arabia and Russia extended supply cuts to the end of the year. Elsewhere, the US is also planning to buy 6 million barrels of crude for delivery in December and January to replenish strategic reserves.
The US government broadly eased sanctions on the Venezuelan oil sector following a deal between Washington and Caracas that promotes fairness in the upcoming Venezuelan elections.
Market players are attempting to gauge the potential impact of the violence, which began on Oct. 7, as well as the effect it will have on crude oil supply lines as the crisis escalates.
During the week, oil prices surged to $93 a barrel over Iran’s call for an oil embargo on Israel following an Israeli airstrike on the Al-Ahli Baptist Hospital in Gaza, which killed more than 500 people late Tuesday.
Meanwhile, fears of a breakdown in the normalization process between Saudi Arabia and Israel, both of which do not have formal diplomatic relations, also lent support to oil price rises.
Supporting further price increases and strong demand, the Energy Information Administration (EIA) on Thursday revealed a drop in oil inventories of 4.5 million barrels per day to 419.7 million barrels, compared to the American Petroleum Institute’s expectation of a drawdown of around 4.4 million barrels.
Oil prices further spiked on Friday with the US announcement that it would replenish its Strategic Petroleum Reserves (SPR) by adding a total of 6 million barrels to its SPR between December 2023 and January 2024 due to the escalating geopolitical tensions in the Middle East.
Moreover, the weakening dollar as a result of US Federal Reserve Chair Jerome Powell’s remarks on Thursday, in which he said that lower economic growth is required to curtail high inflation, also put upward pressure on oil prices.
On Wednesday, the US decided to partially ease sanctions on the oil, gas and gold sectors in Venezuela following the resumption of talks between the government and the country’s opposition in Barbados.
The decision by the US administration came in response to a political agreement signed between representatives of the government of Nicolas Maduro and the US-backed opposition to hold elections next year.
Oil prices dropped on Thursday on reports of the lifting of sanctions on Venezuela’s oil exports, easing tight supply fears. However, investor caution amid the escalating tension in the Middle East and data signalling a rebound in China’s economy capped price declines.
Market sentiment was boosted after data showed that China’s value-added industrial output, an important economic indicator, rose 4% year on year in the first three quarters of this year. Naira Devaluation Deepens Economic Crisis in Nigeria
