Oil gains could be quickly reversed if there is any progress in resolving the crisis in the Middle East. However, the question remains how long the relative calm will last before another escalation sends traders into panic mode again. It is important to note that not a single barrel of oil has been lost due to the Israel-Hamas war, which has been going on for two weeks. Therefore, the justification for a higher war risk premium on crude prices seems questionable.
While Israel and Gaza do not have a significant impact on the global oil trade, the Strait of Hormuz, which is a key chokepoint for oil transportation, could be affected. Additionally, concerns about Iran, the fifth largest oil producer, and potential reprisals from Israel and the United States add to the overall unease. However, some oil traders see the conflict as a major political event rather than a tangible risk to the oil trade.
The recent release of two prisoners by Hamas, though a positive development, is relatively insignificant considering there are still 200 Israeli hostages held and 50 more held by other armed groups. The Israeli mission to eliminate Hamas is unlikely to be deterred by this gesture.
While there is a valid concern about regional contagion from the conflict, it is a stretch to maintain a risk premium of $7 to $10 per barrel without a significant impact on the oil trade. The fact that fuel prices in the United States have actually fallen suggests that the broader oil trade should not be overly influenced by the crisis.
In terms of market settlements and activity, New York-traded crude for December delivery settled at $88.08, down 0.3%. London-traded crude for the most-active December contract settled at $92.16, down 0.2%. Gold, on the other hand, reached $2,000 for the first time since August due to concerns about the Middle East crisis and the Federal Reserve’s hesitancy to raise interest rates. The spot price settled at $1,994.40, up 0.7% on the day.
Natural gas, which had recently shown signs of improvement, returned to the $2 territory on Friday. The prospects for gas weakened after a larger-than-expected addition to inventories. The price outlook for natural gas suggests that it may decline further if it breaks below $2.87.
Overall, while the Middle East crisis continues to create uncertainty in the markets, it is important to assess the actual impact on the oil trade and not rely solely on speculation and fear. The current prices of fuel in the United States indicate that the crisis has not significantly affected the broader oil trade.