Oil prices soared on Monday as the conflict between Israel and Palestine further raised the political uncertainty in the Middle East and presented the potential for disruptions in supplies.
Global benchmark Brent crude oil futures gained 3.42% to $87.47 per barrel, while the US West Texas Intermediate (WTI) crude futures added 3.61% to $85.78 per barrel. The two benchmarks have risen by over $4.00 per barrel earlier in the session.
The increase undid the previous week’s downtrend that resulted in the biggest weekly drop since March. The slide saw Brent lose 11.00% and WTI shed 8.00% amid concerns about high-interest rates weakening oil demand.
Middle East Geopolitical Risk to Support Oil
Analysts expect oil prices to strengthen due to growing geopolitical risk in the Middle East, with higher volatility being a likely scenario.
Israel on Saturday unexpectedly suffered a fatal attack from the Palestinian militant group Hamas, which marked the largest military assault on the country in decades.
The attack claimed the lives of hundreds of Israelis and prompted Israel to retaliate by executing air strikes on Gaza that raised the death toll from the war to 400 people.
Energy analyst Saul Kavonic said the risk premium on oil is climbing because of the possibility of a broader conflict that might impact neighboring oil producers such as Iran and Saudi Arabia.
The fighting risks hindering US efforts to establish a peace deal between Saudi Arabia and Israel. The pact is expected to see the kingdom normalizing its partnership with Israel. It also includes a defense agreement between Washington and Riyadh.
Saudi Arabia reportedly offered on Friday to increase its production in 2024 as part of the proposed three-way deal. More output from the country would help ease tight oil supply conditions after months of reducing stocks from top producers Saudi Arabia and Russia.
Normalizing the kingdom’s ties with Israel may delay recent efforts to reconcile Riyadh and Iran, which has expressed support for Hamas’ attacks.
If Iran becomes involved in the conflict, oil supplies may be kept in check, according to analysts.
Kavonic stated that up to 3.00% of global oil supply would be at risk if the issue drags Iran. Furthermore, he estimated that about 20.00% of supply worldwide could be at risk if a more severe conflict occurs and impacts shipment through the Strait of Hormuz.
