Oil pared back gains following its biggest jump in six months, following a statement by Israel that its retaliation against Hamas had “only started,” driving up tensions and increasing fears of fresh instability in the region.
Following a 4.3% surge in its price Monday, West Texas Intermediate fell 0.3% as the overall effects of the Saturday attacks began to settle into the market. Israel, meanwhile, has announced the largest-ever mobilization, calling up over 300,000 army reservists as attacks on Gaza were launched from both the air and the sea. Hamas announced it would begin executing hostages if Israel continued to attack civilian areas in Gaza, as Prime Minister Benjamin Netanyahu vowed Israel would “change the Middle East.”
Oil meanwhile surged off fears the conflict might spread, following a steady period of gains over the past couple of months off supply constraints imposed by OPEC+, as well as additional, unilateral voluntary export reductions by major producers Saudi Arabia and Russia.
Although the role Israel plays in the global supply of oil is limited, there are fears the conflict in the region could possibly spread to Iran, drawing in the United States as well. Were Israel to enter into a conflict with Iran, the United States could impose sanctions blocking Iran’s oil shipments from the global market. That could lead to Iran retaliating by blocking the passage of vessels through the Strait of Hormuz, a vital conduit which allows the transport of much of the world’s crude oil shipments. Iran has denied any involvement in the attacks by Hamas.
Interviewed by Bloomberg TV, Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia, said, “When we’ve seen Palestine-Israel conflicts in the past, the price premium that we’ve seen baked into oil prices has been quite temporary,” due to the small impact it would have on supply. However he noted, depending on how any conflict spreads to Iran, there could be a “real scenario where there is disruption.”
Iran has become a major source of additional crude this year, especially as markets have tightened. Most of the Islamic Republic’s crude oil has been shipped to China with the tacit blessing of the United States. Any sanctions levied on Iran by the United States could shut down that additional supply, further tightening the market.
Thursday a flurry of indicators are set to be released, including a monthly market report from OPEC, and the International Energy Agency, and a US weekly inventory report.
