Oil prices soared more than 4% on Monday after a surprise offensive over the weekend by the Palestinian Islamist movement Hamas against Israel raised concerns about its impact on supplies from the oil-rich region. The price of a barrel of North Sea Brent crude jumped 4.7% to $86.65. U.S. West Texas Intermediate (WTI) crude was up 4.5% at $88.39 a barrel in early Asian trading.
Israel's surprise attack and declaration of war on the Palestinian Islamist movement on Sunday has already killed more than 1100,<> people and there are fears of a new rise in tensions in the Middle East. "What's critical for markets is whether the conflict remains contained or spreads to other regions, particularly Saudi Arabia," said ANZ analysts Brian Martin and Daniel Hynes. "At least initially, markets seem to think that the situation will remain limited in terms of scope, duration and impact on oil prices. But we can expect more volatility."
The crisis comes at a time when oil prices are already high due to concerns about lower production from Russia and Saudi Arabia. It also raises concerns about its impact on inflation. Rising energy costs are one of the main causes of the current price spike.
Continued decline in production
WTI and Brent, the two global benchmarks, initially briefly rose by more than 5% on Asian markets before falling back below this mark. SPI Asset Management's Stephen Innes cautioned, however, that history has shown "that oil prices tend to make sustained gains after crises in the Middle East."
On Friday, oil prices ended modestly higher in New York, benefiting only marginally from the return of risk appetite, offset by lingering concerns about global demand and the partial lifting of restrictions imposed by Russia on diesel exports. Separately, last week, a panel of the Organization of the Petroleum Exporting Countries and their allies (OPEC+) recommended maintaining the current strategy of production cuts, reinforced by Saudi and Russian cuts, in a bid to support prices. She also praised "the efforts of Saudi Arabia", the group's leader, which has voluntarily reduced its production by one million barrels per day since July.
The Saudi Ministry of Energy has confirmed that this measure will continue until the end of 2023. The kingdom's production is therefore expected to amount to about 9 million barrels per day for the months of November and December, it said. Russia, another OPEC+ heavyweight, is also maintaining a 300,000-barrel-a-day cut in exports until December, Deputy Prime Minister Alexander Novak said. These decisions are in addition to the cuts introduced since the beginning of May and in force until the end of 2024 by nine countries, including Riyadh, Moscow, Baghdad and Dubai, for a total of 1.6 million barrels per day.