Oil prices have surged by nearly 3% following Iran’s missile attack on Israel, raising concerns about supply disruptions in the Middle East amid escalating military tensions.
Oil Prices Climb
Oil prices surged on Tuesday after Iran launched ballistic missiles at Israel in retaliation for the ongoing conflict involving Hezbollah in Lebanon. This military escalation sent shockwaves through global markets, resulting in a significant spike in crude oil prices.
Brent crude futures rose by $1.86, or 2.6%, to settle at $73.56 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude increased by $1.66, or 2.4%, closing at $69.83. At one point during the trading session, both benchmarks had gained over 5%.
Escalating Tensions in the Region
The missile strikes triggered alarms across Israel, and explosions echoed in cities like Jerusalem and regions surrounding the Jordan River. Residents rushed to bomb shelters as tensions escalated.
Clay Seigle, an independent political risk strategist, noted, “Israel will not hesitate to widen its military offensive to hit Iran directly.” He emphasized that Iran’s oil assets could become targets, leading to significant disruptions in oil production.
An attack on Iranian oil production or export facilities could potentially disrupt over one million barrels per day of output. Such a scenario would have a profound impact on the global oil supply chain.
Attacks on Shipping
In the Red Sea, the Houthis, an Iran-backed group in Yemen, claimed responsibility for attacks on at least two vessels near the port of Hodeidah. Since November, the Houthis have been targeting international shipping routes as a show of solidarity with the Palestinians in the ongoing conflict with Israel.
Tamas Varga, an analyst at PVM, a brokerage firm, remarked, “There is now a genuine fear that oil supply will be impacted.” He warned that trading in the oil market would likely remain volatile as the situation develops.
Market Reactions Prior to the Escalation
Prior to the news of the missile strikes, the oil market was already trading near a two-week low. Factors such as increased supply expectations and lukewarm global demand growth had overshadowed earlier concerns about escalating conflicts in the Middle East.
The Organization of the Petroleum Exporting Countries (OPEC+) is scheduled to meet on October 2 to review the market situation. No significant policy changes are anticipated during this meeting. Starting in December, OPEC+ plans to raise output by 180,000 barrels per day each month.
Potential Recovery in Libya
Concerns about global oil supply are compounded by developments in Libya. The eastern-based parliament has recently agreed to nominate a new central bank governor, which could stabilize the situation and restore oil output in the country. Libya produced approximately 1.3 million barrels per day last year, while Iran, under U.S. sanctions, produced around 4.0 million barrels per day.
Upcoming U.S. Oil Storage Data
Investors are also looking forward to U.S. oil storage data from the American Petroleum Institute (API) and the Energy Information Administration (EIA). Analysts expect that U.S. energy firms pulled about 1.3 million barrels of crude out of storage for the week ending September 27. This would mark the third consecutive week of withdrawals.
If these projections hold true, it would contrast sharply with a withdrawal of 2.2 million barrels during the same week last year. It also differs from the average increase of 400,000 barrels observed over the past five years.
The recent surge in oil prices, driven by Iran’s missile strikes on Israel, underscores the fragility of the global oil supply amid rising geopolitical tensions. With fears of potential disruptions in oil production and ongoing volatility in the market, traders and investors will be closely monitoring developments in the region. As the situation unfolds, it remains to be seen how both the oil market and the geopolitical landscape will evolve.
