Oil prices increased on Thursday as concerns about a potential escalation of conflict in the Middle East took precedence over the outlook for stronger global supply. This heightened apprehension about crude oil flows from the region, leading to market reactions. Brent crude futures saw a rise of $1.02, reaching $74.92 per barrel, while U.S. West Texas Intermediate crude increased by $1.10 to settle at $71.20.
The market’s attention remains on geopolitical developments, with analysts noting a mix of anxiety and cautious optimism. Yeap Jun Rong, a strategist at IG, remarked that, despite some initial jitters caused by the tensions in the Middle East, global markets had experienced a slight return to calm. Still, market participants continue to keep an eye on any potential escalation in Israeli responses. The situation intensified as Israel carried out bombings in Beirut, resulting in six deaths, following the deadliest clash between its forces and Iran-backed Hezbollah in a year. Israeli Prime Minister Netanyahu pledged that Iran would face consequences for its missile attack, while Iran warned of severe retaliation in response, fuelling fears of a broader war.
IG market analyst Tony Sycamore suggested that further actions from Israel might only become clear after the conclusion of the Rosh Hashanah holiday. Analysts like John Evans of oil broker PVM emphasised that it’s unwise to dismiss any possible developments in the Middle East, and market participants remain cautious, maintaining defensive positions until more concrete signs of escalation emerge.
While these geopolitical tensions had an impact, other market factors also played a role in oil price movements. U.S. crude inventories rose by 3.9 million barrels to reach 417 million barrels in the week ending September 27, according to the Energy Information Administration. This increase contrasted with expectations of a 1.3 million-barrel decline, as projected in a Reuters poll. Analysts at ANZ noted that swelling U.S. inventories served as additional proof that the market is well supplied and capable of withstanding potential disruptions.
Despite the tensions, some investors appear largely undeterred. Current global crude supplies have yet to be affected by the unrest, and the availability of spare capacity within OPEC has helped to ease concerns. According to Jim Simpson, CEO of East Daley Analytics, while prices might remain elevated or volatile for a bit longer, there is ample production to meet demand. He reassured that the existing supply levels should be sufficient to offset any potential disruptions. Additionally, OPEC is considered to have enough spare oil capacity to manage a complete loss of Iranian supply, should Israel target those facilities.
Challenger Energy Group plc (LON:CEG) is a Caribbean and Atlantic margin focused oil and gas company, with a range of petroleum assets located onshore in Trinidad and Tobago, and Suriname, and offshore in the waters of The Bahamas and Uruguay.
