Early Asian trading on Monday saw an increase in oil prices of more than $4 a barrel as political unrest spread throughout the Middle East following dramatic military engagements between Israeli and Hamas forces over the weekend.
By 0120 GMT, Brent crude was up $4.18, or 4.94%, to $88.76 per barrel, while U.S. West Texas Intermediate crude was up $4.23, or 5.11%, to $87.02 per barrel.
The increase in oil prices reversed last week’s downward trend, which was the steepest weekly loss since March. Amid worries about the effects of high-interest rates on global demand, WTI and Brent both declined by more than 8% and over 11%, respectively. The deadliest military assault on Israel in decades was launched by the Palestinian Islamist group Hamas on Saturday, killing hundreds of Israelis and sparking a wave of Israeli air attacks on Gaza in retaliation that continued through Sunday.
Also read: Hamas Fighters Paraded Naked Body Of Female Israeli Soldier
Oil prices should be supported by rising geopolitical risk in the Middle East, according to ANZ Bank analysts, who also predicted greater volatility.
U.S. efforts to mediate a reconciliation between Saudi Arabia and Israel, in which the kingdom would normalise relations with Israel in exchange for a defense agreement between Washington and Riyadh, appear to be in jeopardy as violence has broken out.
Saudi officials allegedly informed the White House on Friday that they would be open to increasing output under the proposed Israel contract for the following year.
After Saudi Arabia and Russia, two important producers, curtailed their supplies for several months, a boost in Saudi output would have helped to ease the supply crunch.
Recent steps towards detente between Saudi Arabia and Iran would probably come to a halt if relations between Israel and Saudi Arabia were normalized.
Western countries condemned the strikes, but Iran and Hezbollah, Iran’s allies in Lebanon, openly hailed them.
Also read: Hamas Fighters Paraded Naked Body Of Female Israeli Soldier
The focus of the market has shifted to the assertion made by Israeli officials that Iran was involved in the assaults.
According to a letter by Vivek Dhar, an analyst at the Commonwealth Bank of Australia, “There must be a sustained reduction in oil supply or transport for this conflict to have a lasting and meaningful impact on oil markets.”
“If Western countries officially link Iranian intelligence to the Hamas attack, then Iran’s oil supply and exports face imminent downside risks,” Dhar stated.
