Oil prices saw a sharp rise of more than $3 per barrel on Thursday as concerns over escalating tensions in the Middle East fueled worries about potential disruptions to global oil supplies.
Brent crude futures jumped $3.72, or 5.03%, to close at $77.62 a barrel, while U.S. West Texas Intermediate (WTI) crude climbed $3.61, or 5.15%, reaching $73.71 per barrel. Both benchmarks hit their highest levels in a month, with Brent touching an intraday high of $77.89 and WTI peaking at $73.97.
The spike in prices comes amid fears that the ongoing conflict could spread, potentially impacting key oil infrastructure in the region. Market anxiety grew following speculation that Israel could target Iran’s oil facilities, which might trigger a retaliatory response. When asked whether he would back Israel in striking Iranian oil targets, U.S. President Joe Biden stated that discussions are ongoing, while emphasizing that “there is nothing going to happen today.”
The Pentagon acknowledged ongoing discussions with Israel but refrained from providing specific details. Iran, a key member of OPEC, contributes around 3.2 million barrels per day, accounting for approximately 3% of global oil production. Any disruption to its supply could have a significant impact on the market.
Analysts suggest that the current situation could be a turning point. Phil Flynn, a senior analyst at Price Futures Group, noted that up until now, the risk to oil supply has been largely downplayed, but the potential for disruptions could change the market’s outlook.
There is also concern that if the conflict escalates, Iran might consider blocking the Strait of Hormuz, a vital passage for about 20% of the world’s daily oil supply. In a worst-case scenario, Iran could even attack Saudi oil infrastructure, as seen in 2019. Analysts at Panmure Gordon emphasized the strategic importance of the strait and warned of the potential consequences of its closure.
Market estimates for Q4 2024 previously projected oil prices to average around $75 per barrel. However, according to StoneX analyst Alex Hodes, if the conflict intensifies, prices could rise to between $78 and $80 per barrel.
Meanwhile, Gulf states, along with Iran, engaged in talks hosted by Qatar, aiming to ease hostilities. Sources indicated that Gulf countries expressed their desire to remain neutral, stressing that further escalation could threaten regional oil facilities.
The situation remains volatile, with Israel’s military urging residents of multiple towns in southern Lebanon to evacuate as it continued targeting Hezbollah positions. Israeli Prime Minister Benjamin Netanyahu stated that Iran would face consequences for its recent missile attack on Israel, while Tehran warned that any response would be met with “vast destruction.”
Despite the turmoil, some analysts believe the market might be able to absorb potential supply shocks. U.S. crude inventories unexpectedly rose by 3.9 million barrels last week, suggesting that the market is well-supplied for now. ANZ analysts noted that the higher-than-expected stockpiles provide a buffer against any immediate disruptions.
OPEC’s spare capacity is another factor helping to contain fears, as the organization has enough reserves to make up for a potential loss of Iranian supply.
