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Oil prices experienced a significant surge of more than 3% on Monday, driven by escalating military clashes between Israel and the Palestinian Islamist group Hamas. These events have ignited fears of a broader conflict in the already volatile Middle East.
Brent Crude Climbs to $87.28
Brent crude, a global benchmark, surged by $2.70, representing a 3.2% increase, reaching a price of $87.28 per barrel at 1143 GMT. Simultaneously, U.S. West Texas Intermediate crude saw an increase of $2.78, or 3.4%, with a price of $85.57 per barrel. Both benchmarks witnessed a spike of over $4 per barrel earlier in the session.
Reversal of Last Week’s Downtrend
This sudden surge in oil prices marks a reversal of last week’s downtrend, which saw the largest weekly decline since March. During this period, Brent crude fell approximately 11%, while WTI retreated by more than 8%. The darkening macroeconomic outlook had intensified concerns regarding global demand.
Read More: Middle East Violence Sparks Oil Price Surge
Middle East Tensions Impact Oil Prices
Tamas Varga, an oil broker from PVM, noted that while the underlying supply-demand balance remains unaffected, any rise in tension in the Middle East usually leads to an increase in oil prices, and this situation is no different.
Geopolitical Ramifications
The recent conflict began when Hamas initiated the largest military assault on Israel in decades, resulting in a series of retaliatory Israeli air strikes on Gaza. This eruption of violence poses a threat to U.S. efforts to mediate a reconciliation between Saudi Arabia and Israel, involving the normalization of ties in exchange for a defense agreement between Washington and Riyadh.
Uncertainty Surrounds Oil Rally Duration
Citi analysts question the duration of this oil rally, emphasizing the importance of timing. The recent attacks are likely to delay any Saudi-Israeli reconciliation and any expectations of Saudi Arabia reducing or eliminating its extra 1 million bpd cut if oil prices resume their recent decline.
Iran’s Role in the Conflict
There are also concerns about the potential involvement of Iran in the conflict. If the conflict extends to Iran, up to 3% of the global oil supply could be at risk. Furthermore, a wider conflict could impact transit through the Strait of Hormuz, potentially holding approximately 20% of the global oil supply hostage, according to energy analyst Saul Kavonic.
OPEC Raises Oil Demand Forecasts
In a separate development on Monday, OPEC revised its world oil demand forecasts for the medium and long term. This contrasts with other forecasters, such as the International Energy Agency (IEA), which has suggested that oil demand might peak within this decade. The situation in the Middle East continues to unfold, influencing global oil markets.
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