Brent surges amid growing tension in the Middle East

The front-month ICE Brent contract has gained $2.77/bbl on the day from Friday, to trade at $86.97/bbl at 09.00 GMT.

PHOTO: Flag of Israel and Palestine depicting conflict. Getty Images

Upward pressure:

Brent prices recovered last week’s losses as clashes between Israel and Palestinian militant group Hamas triggered volatility in oil markets. Hamas launched terror attacks on Israel over the weekend, re-fuelling long-term conflicts between Israel and Palestine and killing hundreds of Israeli soldiers and civilians. As retaliation, Israel launched air strikes on Gaza, killing over 400 people. The clashes have raised fears of geopolitical tension spreading to other parts of the Middle East.

“Historical analysis suggests that oil prices tend to experience sustained gains after the Middle East crises,” commented SPI Asset Management’s managing partner Stephen Innes.

The rising tension between Israel and Palestine and the risk of this conflict spreading could prompt oil traders to remain nervous, “until there is a clear de-escalation,” said ING Bank’s head of commodities strategy Warren Patterson. 

Oil market analysts expect these clashes to affect oil supply from the Middle East as there are reports that Iran helped the Palestinian militant group to execute the attacks. “If this is proven to be true, we could see the US, an ally of Israel, taking a tougher stance against Iran, which could ultimately lead to a reduction in oil supply,” said Patterson.

Oil investors will “wait and see” if there were other governments involved in this attack, said Innes. “Particularly Tehran, which could all but guarantee a broader conflagration,” he further added.

Downward pressure:

Meanwhile, Brent futures continued to face some downward pressure from interest rate hike fears.

“Concerns about a potential rates-driven recession in 2024 led to a shift in the crude futures curve,” Innes said. “Investors began to worry about the impact of rising interest rates on economic growth and oil demand,” he further added.

Brent price is expected to decline if the US Federal Reserve (Fed) decides to hike interest rates again in 2023. Higher interest rates can curb consumer spending on dollar-denominated commodities like oil, ultimately affecting demand.

By Aparupa Mazumder

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