Oil prices surged by more than $1 on Friday due to reports of the U.S. military striking Iranian targets in Syria, sparking concerns about an escalation of the Israel-Hamas conflict and its potential impact on oil supply from the Middle East, a crucial oil-producing region.
In early trading, Brent crude futures for December increased by $1.16, or 1.3%, to reach $89.09 per barrel. The U.S. West Texas Intermediate contract for December also saw a rise of $1.08, or 1.3%, reaching $84.29 per barrel.
The U.S. military’s strikes targeted two facilities in eastern Syria used by the Iran’s Islamic Revolutionary Guard Corps and affiliated groups. This action was in response to recent attacks on U.S. troops in Iraq and Syria. These attacks have increased since the onset of the Israel-Hamas conflict on October 7.
Although the strikes did not directly impact oil supply, they heightened concerns that the Gaza conflict between Israel (backed by the U.S.) and Hamas might escalate and disrupt supply from Iran, a major oil producer supporting Hamas. A broader war could also disrupt shipments from Saudi Arabia, the world’s largest oil exporter, and other major producers in the Gulf.
While Brent and WTI oil prices are on track to record their first weekly decline in three weeks, the geopolitical premium built on these fears has lessened as there has been no oil supply disruption outside the immediate conflict region.
Kelvin Yew, a senior oil trader at Ocean Leonid Investments, commented, “As a trader I’m going to have to say we are somewhat out of our league here – trying to ascribe a value to geopolitics when no meaningful supply has been disrupted outside of the Levant.”
Overnight, Israeli forces conducted their most extensive ground attack in the 20-day-long conflict with Hamas, drawing criticism from the Arab world. Israeli Prime Minister Benjamin Netanyahu had indicated that Israeli troops were still preparing for a full ground invasion, despite calls from the U.S. and other countries to delay it out of concern that it could ignite hostilities on other fronts in the Middle East.
RBC Capital analyst Helima Croft noted, “… it remains incredibly difficult even for the most knowledgeable regional watchers to make high conviction calls about the trajectory of the current crisis as the redlines that could bring more players onto the battlefield remain largely indiscernible.”
Goldman Sachs analysts maintained their first-quarter 2024 Brent crude price forecast at $95 per barrel, but they suggested that lower Iranian exports could push baseline prices up by 5%. In a less likely scenario where trade through the Strait of Hormuz, a transit point for 17% of global oil production, is interrupted, prices could spike by 20%, they added.
Furthermore, voluntary supply cuts by Saudi Arabia and Russia, in effect until the end of the year, are tightening global markets and providing support for oil prices, according to analysts.
