Oil Prices Surge Amid Middle East Crisis and US Sanctions on Russia
Oil Markets Witness Dramatic Swings Amid Heightened Middle East Tensions
Investing in the oilfield is never dull, as highlighted by oil services firm Panther on its website. Similarly, the oil markets continue to be a source of constant drama, with each passing day and even hour bringing new developments.
Friday was no exception. Crude prices experienced a significant surge, rising by as much as 7% over the week. The Middle East crisis reached a new peak when Israel announced its plans to launch a ground assault on Gaza, escalating its ongoing war with Palestinian militant group Hamas. Additionally, the White House imposed sanctions on companies supporting Russia’s oil sales above the $60 per barrel cap set by the United States and its allies.
The New York-traded crude for November delivery settled at $87.69 per barrel, marking a 5.8% increase, with a session high of $87.83. The US crude benchmark concluded the week with a nearly 6% gain. Similarly, the London-traded crude for the most-active December contract settled at $90.89 per barrel, a 5.7% increase, surpassing the desired $90-per-barrel mark favored by oil bulls. The global crude benchmark reached a session peak of $90.67.
In the midst of the recent rally triggered by Hamas’ initial attacks on Israel, the market experienced a downturn due to the largest increase in US crude inventories since February and a record-breaking level of production surpassing pre-pandemic levels.
Furthermore, Saudi state oil firm Aramco notified several refiners in North Asia that it would supply them with the full contractual volumes nominated for November. This challenged the prevailing belief that Saudi Arabia’s main priority was to maintain a tight market through production cuts rather than ensuring an ample supply of oil.
Iran’s Potential Involvement in the Middle East Conflict Raises Concern
Oil prices rebounded due to the combination of the Israel-Hamas conflict and the crackdown on Russia’s violation of the G7 price cap on oil. These factors further fueled the narrative of a tight oil market, which had a significant impact on oil traders’ sentiment.
Another factor contributing to the complexity of the situation is Iran’s apparent eagerness to participate in the Middle East conflict, despite being restrained by both Israel and the United States for now. Observers closely monitor Iran’s involvement, given its status as the world’s fifth-largest oil exporter.
While Iranian oil exports are also under sanctions, the United States has turned a blind eye to the surge in crude shipments from Iran since late 2022. This leniency was motivated by Washington’s desire for a more significant oil supply to offset production cuts by the OPEC+ producer group.
Consequently, Iranian crude output is estimated to have increased by nearly 700,000 barrels a day this year, ranking it as the second-largest source of incremental supply in 2023, following US shale oil.
However, if Iran becomes actively involved in the ongoing Hamas-Israel conflict, the enforcement of sanctions on Iranian oil exports could change.
(Peter Nurse contributed to this article)
