In a volatile turn of events, oil prices experienced a sharp uptick on Tuesday, following a precipitous drop on Monday, underscoring growing apprehension among investors regarding the prolonged Israel-Hamas conflict. West Texas Intermediate (WTI) surged, nearing the $83 per barrel mark, attempting to recover from the previous day’s slump, which erased gains stemming from the October 7th attack on Israel. Meanwhile, Brent crude traded near $88 per barrel.
The looming specter of an escalated conflict, which could potentially disrupt crude supplies, has begun to recede. This shift comes as Israeli Prime Minister Benjamin Netanyahu categorically ruled out the possibility of a cease-fire. Additionally, Saudi Arabia remains on high alert following skirmishes with Yemen’s Iran-backed Houthi rebels.
Recent data from Asia paints a picture of a global economic slowdown gaining momentum. China’s manufacturing sector retracted, slipping back into contraction territory. Furthermore, BP Plc highlighted the arduous landscape of fuel retailing, citing the oversupply in gasoline and diesel markets as a significant challenge.
Tamas Varga, an analyst at brokerage firm PVM Oil Associates Ltd., noted, “The possibility of a reduction in Middle East oil supply has not dissipated. Should it materialize, oil prices will rally towards their annual peaks, and possibly even surpass them, depending on the extent of the setback.”
Signs of a softening near-term oil market were evident in the narrowing of WTI’s prompt spread, indicating a less stringent immediate outlook. The closely-watched differential has retreated to 61 cents a barrel in backwardation, down from approximately $2 a barrel at the close of September.
This backdrop of economic uncertainties is set against a backdrop of weakening demand, with prices expected to stabilize in October as the risk premium attributed to the conflict diminishes. The imminent US presidential election, with its uncertain outcome, adds an additional layer of volatility to the market, as the policies of the eventual victor will wield substantial influence over the fate of the oil market.
The fluctuations in oil prices amid the ongoing Israel-Hamas conflict highlight the intricate interplay between geopolitical events and global energy markets. Regardless of the various uncertainties on the horizon, one certainty remains: the world is closely monitoring the Israel-Hamas conflict as it enters its fourth week.
Source: Bloomberg
