HomeFutures and CommoditiesIncrease in oil prices due to escalating Middle East conflict and supply...

Increase in oil prices due to escalating Middle East conflict and supply concerns.

Oil Prices Surge as Middle East Conflict Escalates

Oil prices soared on Monday as violence in the Middle East intensified, sparking concerns about future crude supply security.

By 04:45 ET (08.45 GMT), futures traded 3.1% higher at $85.33 a barrel, while the contract climbed 2.8% to $86.92 a barrel.

Escalation of Regional Conflict Raises Supply Concerns

The Israeli-Palestinian conflict escalated over the weekend, resulting in a full-blown war. Hamas attacked several Israeli towns, triggering retaliatory Israeli air strikes on Gaza. While the conflict’s current scope has no direct impact on global oil supply, prices are rising due to concerns about neighboring countries becoming involved.

- Advertisement -

According to The Wall Street Journal, Iranian security officials allegedly assisted Hamas in planning the attack, a claim denied by Iran’s mission to the United Nations. The United States has taken a softer stance on the Iranian oil embargo this year, attempting to improve relations as part of a regional peace deal. However, if a link to Tehran is established, tighter enforcement of sanctions is a possible response.

“Enforcing these sanctions more strictly would mean the potential loss of at least 500Mbbls/d,” noted analysts at ING. “If this loss materializes, the surplus we currently forecast in 1Q24 would largely disappear, leaving the market roughly in balance early next year. For the remainder of 2024, we would see deeper deficits, particularly over 2H24. Under this scenario, there would be some upside risk to our current Brent forecast of US$90/bbl for next year.”

The worry is that Iran may disrupt oil shipping in the Strait of Hormuz, potentially impacting around a fifth of the world’s supplies.

- Advertisement -

Crude Prices Hit by Growth and Interest Rate Concerns

Last week, oil prices experienced their steepest weekly losses since March, with Brent posting an 11% decline and WTI dropping over 8%. The decline was due to concerns that persistently high interest rates would slow global growth and reduce fuel demand.

On Monday, evidence of slowing global growth emerged as industrial production in Germany fell 0.2% in August. Although this represents an improvement from the previous month’s revised 0.6% drop, it is the fourth consecutive month of decline, raising recession fears.

This week, attention will be on the release of U.S. inflation figures, which could reinforce the Federal Reserve’s message that interest rates need to remain higher for longer.

Overall, the escalating conflict in the Middle East is driving oil prices higher, while concerns about global growth and interest rates continue to weigh on the market.

Must Read