Oil prices steadied on Friday after a sudden spike triggered by reports of Israel’s attack on Iran, as market anxieties over potential escalation in Middle East tensions eased, albeit briefly, while concerns about a global oil surplus weighed on sentiment.
Benchmark contracts surged over $3 before retracing some gains. As of 0845 GMT, Brent futures edged up by 14 cents, or 0.2%, to $87.25 a barrel, while the most active U.S. West Texas Intermediate contract climbed 23 cents, or 0.3%, to $82.96 per barrel.
Reports emerged of Israel’s offensive on Iranian soil, intensifying the ongoing conflict between the two nations. While Iranian media confirmed explosions, an Iranian official attributed them to air defense systems. The situation raised fears of a potential retaliatory cycle, heightening concerns within the oil market.
Commodities analyst Bjarne Schieldrop from SEB Research noted, “The fear is that we are on an escalating tit-for-tat retaliatory path. … The hope is that the retaliatory strikes will be fading in magnitude and then fizzle out.” However, despite such hopes, apprehensions persisted due to the significant stakes involved in the oil supply.
The recent escalation follows Iran’s launch of hundreds of drones and missiles last weekend in response to a suspected Israeli attack on its embassy compound in Syria. While most of the projectiles were intercepted, the event underscored the region’s volatile dynamics.
Amid geopolitical tensions, concerns over burgeoning global oil inventories weighed on prices. Citi analysts highlighted a steady increase in visible oil stocks globally, despite recent price surges, with crude stocks witnessing a build-up of approximately 1 million barrels per day in the first quarter.
Adding to the complexity, the U.S. announced sanctions on Iran, targeting its unmanned aerial vehicle production in response to the drone strike on Israel. Notably, the sanctions exempted Iran’s oil industry, providing a nuanced backdrop to the evolving geopolitical landscape and its implications for global oil markets.
