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Traders hit pause as the oil market evaluates the consequences of the Israel-Hamas war.
Oil prices, which had seen a more than 4% surge in both US crude and Brent, took a U-turn within a day of the Israel-Hamas conflict escalation. As the clock struck noon in Asia on Tuesday, both oil benchmarks were trading in the negative. This sudden pause in the oil rally stems from the lack of credible estimates regarding the potential disruption of Middle East oil supplies due to the ongoing tensions.
Oil Rebound its Prices React Swiftly to Conflict
In Singapore, at 12:01 local time (00:01 Eastern US), New York-traded West Texas Intermediate (WTI) crude for November delivery dropped by 36 cents, or 0.4%, settling at $86.02 per barrel. On the previous day, the US crude benchmark had recorded a $3.59 increase, briefly touching $87.23.
Similarly, London-traded Brent for the most-active December contract saw a decline of 34 cents, or 0.4%, closing at $87.81. The prior session had seen Brent climbing by $3.57, reaching as high as $89.
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Traders Seek Clarity Amid Tensions
John Kilduff, a partner at New York energy hedge fund Again Capital, emphasized the importance of preventing the oil market from getting ahead of itself. While acknowledging the significance of the current conflict, Kilduff questioned whether it was genuinely stifling the oil trade or if the increase in oil prices was merely a reaction to regional tensions.
Kilduff stated, “As of now, there’s no proof that there’ll be a meaningful reduction in barrels because of this war alone, and that includes any clampdown on oil exports from Iran, which is a supporter of all things Hamas. Until and unless we get evidence of that, crude prices should not trade much higher than where they did last week.”
Expert Opinion: John Kilduff’s Insights
Oil prices had hit five-week lows the previous week, with WTI dropping to $81.50 and Brent to $83.44.
In a show of support for oil rebound markets on Monday, Saudi Energy Minister Abdulaziz bin Salman confirmed that production cuts by the OPEC+ group would persist. The OPEC+ alliance, led by Saudi Arabia and Russia, has been withholding 1.3 million barrels of daily supply, with an additional 2 million barrels or more squeezed by the other 23-nation members.
While Abdulaziz stressed the cohesion of OPEC+, there was no mention of any changes to Iranian oil supply, which has been a key point of interest for the market. Iranian involvement with Hamas adds complexity to the situation, as any counter-engagement by the United States or Israel could impact the oil trade.
Oil Market’s Rollercoaster Ride
In recent times, Washington had allowed surging Iranian oil exports in an attempt to reach a détente with Tehran. However, with the current circumstances, the White House may reconsider these sanctions in support of Israel.
Last week, oil rebound prices surged to over one-year highs, with WTI at $95 and Brent at $97, largely driven by aggressive OPEC+ cuts. Subsequently, the market faced a downturn due to macroeconomic factors such as soaring US Treasury yields and a strengthening dollar, leading to a significant drop in oil prices. US crude fell by 9% and Brent by 11% last week, marking the most substantial weekly slump since March, outweighing any previous weekly oil rallies over the past three months.
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