Oil Prices Fluctuate Amid Diplomatic Efforts

Oil prices rose on Monday, exceeding $91 a barrel, driven by intensified diplomatic efforts to address the Middle East crisis. However, prices later slipped below $90 following reports suggesting the US was nearing a deal to ease sanctions on Venezuela.

Brent crude futures, the international benchmark for oil prices, reached as high as $91 a barrel during Asian trading hours on Monday. This was a slight increase from the previous Friday’s closing price of $90.89. However, they fell to $89.65 a barrel by the end of the trading day.

West Texas Intermediate (WTI), the US benchmark for oil prices, also experienced a brief surge, reaching $87.98 compared to the previous Friday’s closing price of $87.68. Nevertheless, it ended the day at $86.50.

One of the key concerns driving these oil price fluctuations is the ongoing Israel-Hamas war and the potential for it to escalate into a wider conflict in the oil-rich Middle East. Such a development could further constrict global oil supply.

Both Brent and WTI crude prices surged on the preceding Friday after Israel’s military issued a warning for over one million people to evacuate northern Gaza. This action raised concerns about the possibility of Israel launching a ground offensive in response to terror attacks by Hamas, which had already claimed the lives of at least 1,400 people.

US National Security Adviser Jake Sullivan acknowledged on Sunday that while there was no new intelligence suggesting a change in the threat level from Iran, there remained a risk of the conflict escalating.

Analysts at ANZ Research anticipate that oil prices may soon reach $100 a barrel due to the growing risk of regional escalation. While neither Israel nor Gaza significantly contributes to global oil supply, the risk to oil markets would increase if the conflict expanded.

ANZ Research noted that should Iran become involved, up to 20 million barrels per day of oil could be at risk of disruption, both directly and through obstructed logistics. This “Middle East risk” is exerting a significant influence on global asset prices, said Stephen Innes, the managing partner at SPI Asset Management.

He explained that the ongoing conflict might further impact global oil supply by potentially reducing the probability of Saudi-Israeli normalization. This, in turn, could pose downside risks to Iranian oil production, potentially causing oil prices to surge.

Global oil prices have been increasing since late June due to production cuts by Saudi Arabia and Russia, which raised concerns about reduced global supply. Moreover, new US measures unveiled last week to raise the cost of Russia’s attempts to circumvent a cap on the price of its oil could also be contributing to the upward pressure on oil prices.

In currency markets, the shekel, Israel’s currency, weakened on Monday, dropping to less than 4 per US dollar for the first time since 2015. Over the past ten days, the shekel has depreciated by nearly 4%, primarily driven by the Hamas attacks. To stabilize the shekel, Israel’s central bank announced plans to sell up to $30 billion of foreign exchange.

Despite these concerns and geopolitical tensions in the Middle East, US stock markets appeared resilient. On Monday, the Dow closed 314 points higher, representing a 0.9% increase, while the S&P 500 and Nasdaq Composite also posted gains of 1.1% and 1.2%, respectively. Investors seemingly shrugged off the growing geopolitical tensions in the region.