The Hamas attack on Israel shocked the world, but didn\u2019t trigger the big rally that some traders may have expected in a market that saw oil prices at their highest levels of the year less than two weeks ago. <\/p>\n
\u201cOil in the $100s is not out of the realms of possibilities,\u201d said Manish Raj, managing director at Velandera Energy Partners. So far, however, the \u201ccrisis seems to have been contained within Israeli borders.\u201d<\/p>\n
\n
Meanwhile, investors in other markets will remain fixated on how oil performs amid the conflict, analysts said.<\/p>\n
\u201cThe human tragedy and geopolitical implications aside, from a market standpoint the attack matters because rising geopolitical tensions mean higher oil prices and the higher oil goes, the stronger the additional headwind on stocks and bonds,\u201d said analysts at Sevens Report Research, in a note.<\/p>\n
On Monday, the front-month November contract for U.S. crude benchmark West Texas Intermediate oil
\n CL.1,
\n -0.10%<\/bg-quote><\/p>\n CLX23,
\n -0.10%<\/bg-quote>
\n climbed $3.59, or 4.3%, to settle at $86.38 a barrel on the New York Mercantile Exchange, for the highest finish since Oct. 3, FactSet data show. Prices had settled at a more than one-year high of $93.68 on Sept. 27. <\/p>\nGlobal benchmark Brent crude saw its December contract
\n BRNZ23,
\n +0.08%<\/bg-quote><\/p>\n BRN00,
\n +0.08%<\/bg-quote>
\n settled at $88.15 a barrel on ICE Futures Europe, up $3.57, or 4.2%, on Monday. It\u2019s down from the Sept. 27 settlement of $96.55, which was the highest since November.<\/p>\n\u201cIt seems oil\u2019s political risk premium has become tame,\u201d said Raj, who expressed surprise that oil prices haven\u2019t jumped even more. \u201cTraders are not convinced that the crisis will spread and affect\u201d the senior producers of the Organization of the Petroleum Exporting Countries.<\/p>\n
The trigger for a substantial price hike would be if \u201cIsrael decides to open direct confrontation with Iran,\u201d he said.<\/p>\n
Analysts have also raised worries that the conflict will impact U.S. relations with Saudi Arabia, which had been showing recent signs of softening.<\/p>\n
Read:<\/strong> \u2018Fear trade\u2019: What Israel-Hamas war means for oil prices and financial markets<\/p>\nWhat happened?<\/h2>\n
Over the weekend, Hamas, the Palestinian militant group that controls the Gaza Strip, launched an attack from Gaza on Israel, leading the Israeli military to launch a wave of attacks on Gaza. More than 700 Israelis have been confirmed dead and least\u00a0560\u00a0Palestinians have been killed, according to a report from The Wall Street Journal.<\/p>\n
Separately, the Wall Street Journal reported that Iran helped to plot the attack on Israel. The Times of Israel, however, reported Monday that Nasser Kanani, Iran\u2019s foreign ministry spokesman, told reporters that accusations linked to an Iranian role in the conflict are based on \u201cpolitical reasons\u201d and that the Islamic Republic does not intervene \u201cin the decision-making of other countries, including Palestine.\u201d<\/p>\n
The \u201cultimate wild move\u201d for the oil market would come if Israel attacks Iran and Iran retaliates with action impeding oil flows in the Strait of Hormuz, said Tom Kloza, global head of energy analysis at the Oil Price Information Service, a Dow Jones company. <\/p>\n
With 20 million barrels a day of petroleum moving through that narrow channel between the Persian Gulf and the Gulf of Oman, the Strait of Hormuz would reassert itself as the \u201cworld\u2019s most treacherous economic chokepoint,\u201d said Kloza.<\/p>\n
Commodities Corner (November 2018):<\/strong> Here\u2019s what U.S. waivers on Iran oil sanctions mean for the global crude market <\/p>\n50th anniversary of Yom Kippur<\/h2>\n
The surprise Hamas attack on Israel brings back memories of the Yom Kippur War between Egypt, Syria and Israel, which happened 50 years ago in October 1973.<\/p>\n
After the U.S. provided emergency aid to Israel for the conflict, the Organization of Arab Petroleum Exporting Countries implemented an oil embargo against the U.S., leading oil prices in the nation to nearly quadruple to $11.65 a barrel by January 1974, according to Federal Reserve History. <\/p>\n
\u201cWithout question, oil prices will be affected by the current conflict\u201d between Israel and Hamas, wrote Michael Lynch, in a Forbes article on Sunday. \u201cViolence anywhere in the Middle East tends to raise tension in the oil market, even when it is far from any oil fields or indeed oil producing nations.\u201d<\/p>\n
Lynch, who\u2019s also president of Strategic Energy & Economic Research, stressed in the article that \u201cthis is not your father\u2019s (or mother\u2019s) oil crisis. Yes, a surprise attack caught Israel off guard, yes this is the Fiftieth Anniversary of the October War, but little else is the same.\u201d <\/p>\n
The first oil crisis came after years of struggle between the oil companies that produced most of the oil in OPEC nations and their governments, with taxation, control and ownership contested, he said. In 1973, the oil market was already very tight after years of soaring demand, and the loss of oil supply combined with uncertainty about the duration of the war saw panic buying in oil, he said.<\/p>\n
This time around,\u00a0\u201cthe volatility and higher prices are unlikely to be lasting, depending mostly on the response of oil producers and other governments, especially the U.S.,\u201d said Lynch.<\/p>\n
Iran and Saudi Arabia<\/h2>\n
For now, the rise in oil prices has come \u201cnot because of supply disruption, but the potential for it,\u201d said Edward Gardner, commodities economist at Capital Economics, in Monday note. <\/p>\n
\u201cIf the U.S. were to judge that Iran is involved in Hamas\u2019s attack, this could lead it to \u2018turn the screws\u2019 on Iran\u2019s oil exports by enforcing sanctions more strictly,\u201d he said. <\/p>\n
Iranian crude production has topped 3 million barrels a day and oil exports are approaching 2 million barrels a day, the Wall Street Journal reported in late September, citing numbers from analysts. The U.S. had been backing away from some actions that were meant to stop Iran\u2019s oil shipments, with negotiations between Washington and Tehran leading to the release of five American detainees who were imprisoned in Iran.<\/p>\n
The spotlight will be on Iran\u2019s daily export of 2 million barrels of oil, said Velandera Energy\u2019s Raj. \u201cIf the U.S. no longer looks the other way while Iran averts sanctions, 2 million daily barrels are at risk.\u201d<\/p>\n
The Israel-Hamas conflict will also make it harder, if not impossible for Saudi Arabia and Israel to \u201cnormalize relations,\u201d said Gardner. \u201cRecently, it had been looking like a Saudi-Israel peace deal, brokered by the U.S., was on the cards\u201d and as part of that, Saudi Arabia had indicated it would be willing to boost oil supply next year.<\/p>\n
See:<\/strong> Biden\u2019s hopes for normalized Israeli-Saudi relations could be casualty of new Mideast war<\/strong><\/p>\nRally for oil, but not for gasoline<\/h2>\n
So while oil prices have rallied on all of that, they haven\u2019t rallied as much as some might expect. <\/p>\n
\u201cSo many of these supply risks are still just that \u2014 risks,\u201d said Gardner. <\/p>\n
Capital Economics had been forecasting the global oil market to be in a 1.2 million barrel per day supply deficit in the second half of this year due to strong demand and supply cuts by OPEC and its allies, followed by a finely balanced market in 2024, said Gardner.<\/p>\n
If these supply risks were to materialize, then we would have to consider raising our forecast for the Brent crude price, which is currently for $85 a barrel by year-end 2024, he said. <\/p>\n
As for the psychologically important $100 a barrel mark for oil, the case for that \u201cgot stronger,\u201d said OPIS\u2019s Kloza, but that might only happen in December or the first quarter of 2024. <\/p>\n
Of course, among the big questions for consumers is what does the risk of higher oil prices mean for gasoline at the pump. The answer may be surprising. <\/p>\n
\u201cU.S. gasoline prices remain tilted toward much lower numbers,\u201d said Kloza. Retail prices have another 25 cents to 40 cents a gallon to fall in order to catch up with the 50 cents to $1.50 a gallon drops the fuel has seen at the wholesale level, he said. <\/p>\n
Read:<\/strong> Demand destruction sinks oil prices as gasoline inventories send warning signal<\/p>\n\u201cGasoline prices will not be rising this month despite the horrors of what happened Saturday,\u201d he said, but if there\u2019s an Israeli retaliatory strike against Iran, \u201cthe calculus immediately changes.\u201d<\/p>\n
For now, \u201cthere is a contraseasonal dip in demand,\u201d and travel demand tends to slip after incidents of terrorism, he said.\u00a0\u201cThe trend for gas prices is clearly lower and we could see gasoline fetch a price only a few dollars above crude oil benchmarks in the current calendar quarter.\u201d<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"The Hamas attack on Israel shocked the world, but didn\u2019t trigger the big rally that some traders may have expected in a market that saw oil prices at their highest levels of the year less than two weeks ago. \u201cOil in the $100s is not out of the realms of possibilities,\u201d said Manish Raj, managing […]<\/p>\n","protected":false},"author":1,"featured_media":71146,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-71145","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\n
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