Oil prices witnessed a dramatic surge on Friday, reaching their highest point since October 2023. This volatility in oil prices stems from escalating tensions between Israel and Iran, fueling fears of a potential attack and a subsequent supply disruption risk in the Middle East.
West Texas Intermediate (WTI) futures soared by as much as 3%, touching an intraday high of $87.30 per barrel. This marks the highest price point for WTI in 2024 so far. Similarly, Brent crude, the international benchmark, spiked to $92.11 per barrel.
Analysts attribute this dramatic price increase to reports suggesting Israel is preparing for an imminent attack on Iranian government targets as early as Saturday. This potential conflict raises concerns about potential disruptions to Iranian oil production, currently estimated at around 3 million barrels per day.
Dennis Kissler, senior vice president at BOK Financial, highlighted these anxieties in a client note: “The escalation of tensions…indicates to traders it may worsen before it gets better…There seems to be a lot of option call buying as we go into the weekend, which is keeping an upward pressure on futures prices.”
Kissler further emphasizes the potential impact on global oil supplies: “If a large percentage of [Iranian production] were to move away or be delayed…the supply/demand picture could tighten further very quickly.”
This recent surge comes amidst an existing upward trend in crude prices. Several factors contributed to this rise, including ongoing production cuts by the oil alliance OPEC+ and lingering tensions stemming from the Israel-Hamas war earlier this year. Additionally, recent drone attacks by Ukraine against Russian refineries have further impacted futures prices.
Some analysts have projected a path towards $100 Brent per barrel. However, they also predict that OPEC members might intervene by utilizing their spare capacity to prevent prices from exceeding a certain threshold. Bank of America’s head of global commodities, Francisco Blanch, recently told Yahoo Finance: “We think oil into the summer months will kind of top out at around $95+ a barrel.”
The rise in energy costs has contributed to inflation in the US over the past two months. As a direct consequence, gasoline prices have also inched upwards, with the national average reaching $3.63 per gallon on Wednesday, according to AAA data. This represents a $0.23 increase compared to the previous month.
The supply disruption risk associated with a potential Iran-Israel conflict presents a significant challenge for the oil market. The coming days will be crucial in determining whether these tensions escalate or de-escalate. If an attack materializes and disrupts Iranian oil production, prices could surge even further. However, if tensions ease and the flow of oil remains uninterrupted, a price correction might be observed. In any case, the immediate future of oil prices remains uncertain, impacted by this geopolitical flashpoint.
Source: Yahoo Finance
