Both Brent and WTI rose 5% this morning, as investors became increasingly concerned about political instability in the Middle East.
Opening the morning session of October 9, each barrel of Brent increased 4.9% to 88.7 USD. US crude oil WTI also increased 5.1% to 87 USD.
This development reverses the trend of last week – when the market recorded the strongest weekly decline since March. Specifically, Brent lost 11% and WTI decreased more than 8% due to concerns about the impact of high interest rates on worldwide oil demand.
However, on October 7, the armed group Hamas attacked Israel , launching the largest military campaign against the country in decades. Israel retaliated with continuous air strikes on the Gaza Strip. Israel said on October 8 that clashes with Hamas gunmen had killed at least 600 civilians and soldiers, while Gaza officials reported the death toll at 370.
“Political instability in the Middle East will support oil prices. Future fluctuations are expected to be even greater,” commented analysts at ANZ.
This event could drag down America’s efforts to reconcile Saudi Arabia and Israel. If Saudi Arabia normalizes relations with Israel, it will have a defense agreement with the US and must increase oil production. This will help reduce the supply shortage of the past few months, due to Russia and Saudi Arabia tightening crude oil production.
The market is currently waiting for Iran’s response, as Israel accused the country of participating in the attack. US officials said on October 8 that they were investigating Iran’s role, but had not seen evidence.
“This attack will have a large and lasting impact on the oil market if supply is continuously reduced and transportation activities are disrupted. If Western countries believe that Iran had a role in this event, supply and exports from Iran are definitely threatened,” said Vivek Dhar – analyst at Commonwealth Bank.