Key information
- December Brent futures reached $73.83 per barrel.
- US West Texas Intermediate (WTI) crude oil rose to $70.10.
- Iran has launched its largest military attack against Israel.
Concerns over escalating tensions in the Middle East led to significant increases in oil prices on Wednesday. December Brent futures reached $73.83 per barrel, while West Texas Intermediate (WTI) rose as high as $70.10 at the time of publishing this article.
These price increases follow an increase of more than 5 percent in both benchmarks on Tuesday. While market sentiment initially tilted towards a weakening global economic outlook impacting fuel demand, the situation quickly changed when Iran launched its largest military attack against Israel.
Increased tensions and market reactions
Iran said its missile attack depended on a new provocation and decided to move to escalation. On the other hand, Israel and the United States have promised retaliation against Tehran, fueling fears of a wider conflict. Iran has warned of “massive destruction” in response to any Israeli action against it.
Global efforts aimed at de-escalation are underway. The United Nations Security Council convened a meeting on the Middle East and the European Union called for an immediate ceasefire. The direct involvement of OPEC member Iran has fueled concerns about possible disruptions to oil supplies. Experts point out that Iranian production reached its highest level in six years in August, at 3.7 million barrels per day.
Market Analysis and Potential Outcomes
Adding a layer of complexity, Capital Economics highlighted the possibility of the United States entering the conflict if the situation worsens, Reuters reported. He pointed out that while Iran accounts for about 4 percent of global oil production, Saudi Arabia’s potential response to Iranian supply disruptions would also be crucial. A group of ministers from OPEC and its allies (OPEC+) met today to assess the market, but no policy changes were made.
The group plans to increase production by 180,000 barrels per day each month starting in December. As these production increases continue, concerns about supply disruptions in the Middle East are expected to ease. Mixed data on US inventories further complicated the situation. Stocks of crude oil and distillates fell last week, while gasoline stocks rose, according to figures from the American Petroleum Institute released yesterday.
Oil investors will continue to watch U.S. jobless claims data released Friday as it is expected to influence the Federal Reserve’s monetary easing forecasts, which could boost overall economic activity and, in turn, therefore, the long-term demand for oil.
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