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Oil prices jump as Middle East violence rattles markets
Global Banking & Finance Review®
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By Andrew Hayley
BEIJING (Reuters) -Oil prices were up more than $3 a barrel in Asian trade on Monday as military clashes between Israel and the Palestinian Islamist group Hamas deepened political uncertainty across the Middle East and raised concerns about supplies.
Brent crude rose $3.10, or 3.67%, to $87.68 a barrel by 0400 GMT, while U.S. West Texas Intermediate crude was at $86.05 a barrel, up $3.26, or 3.94%. Both benchmarks had jumped more than $4 a barrel earlier, before easing slightly.
“Increasing geopolitical risk in the Middle East should support oil prices … higher volatility can be expected” analysts from ANZ Bank said in a client note.
The surge in oil prices reversed last week’s downtrend – the largest weekly decline since March – in which Brent fell about 11% and WTI retreated more than 8% amid concerns about high interest rates and their impact on global demand.
Hamas on Saturday launched the largest military assault on Israel in decades, killing hundreds of Israelis and triggering a wave of retaliatory Israeli air strikes on Gaza that have also killed more than 400 people.
“The risk premium on oil is rising due to the prospect of a wider conflagration that could spread to nearby major oil producing nations such as Iran and Saudi Arabia,” energy analyst Saul Kavonic told Reuters.
The eruption of violence threatens to derail U.S. efforts to broker a rapprochement between Saudi Arabia and Israel, in which the kingdom would normalise ties with Israel in return for a defence deal between Washington and Riyadh.
Saudi officials had reportedly told the White House on Friday that they were willing to raise output next year as part of the proposed Israel deal.
An increase in Saudi output would have helped to relieve tightness after months of supply cuts from key producers Saudi Arabia and Russia.
A normalisation of Saudi-Israeli relations would likely freeze recent moves toward detente between Saudi Arabia and Iran, which has openly praised the Hamas attacks.
Analysts are worried that oil supplies could choked if Iran is dragged into the conflict.
“If the conflict envelopes Iran… up to 3% of global oil supply is at risk. And if a wider conflict eventuates that ends up impacting transit through the Strait of Hormuz, around 20% of global oil supply could be held hostage,” Kavonic said.
(Reporting by Andrew Hayley in Beijing, additional reporting by Emily Chow in Singapore; Editing by Jamie Freed and Sonali Paul and Miral Fahmy)
Brent crude is a major trading classification of crude oil originating from the North Sea. It serves as a global benchmark for oil prices and is used to price two-thirds of the world's internationally traded crude oil.
West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing. It is sourced from the U.S. and is known for its light and sweet characteristics, making it a preferred choice for refining.
A risk premium is the additional return expected by investors for taking on higher risk compared to a risk-free asset. It compensates investors for the uncertainty associated with potential losses.
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