Oil prices experienced a modest increase on Wednesday as investors continued to grapple with the potential for supply disruptions due to escalating turmoil in the Middle East.
Brent crude oil rose by 25 cents, or 0.3%, reaching $87.90 per barrel by 0550 GMT.
U.S. West Texas Intermediate (WTI) crude also increased by 24 cents, or 0.3%, to reach $86.21 per barrel.
While Brent and WTI had surged more than $3.50 on Monday in response to military clashes that raised concerns about the conflict potentially expanding beyond Gaza, they settled lower in Tuesday’s session.
Despite Israel being a minor producer of crude oil, the markets remained worried that the ongoing conflict could intensify and disrupt Middle East oil supply. This situation could exacerbate the expected supply deficit for the remainder of the year.
Analysts from ING bank, Warren Patterson, and Ewa Manthey, stated, “There is still a risk that this escalates, particularly if there is any Iranian involvement. Under this scenario, stronger enforcement of U.S. sanctions on Iranian oil would tighten up the oil market through 2024.”
While U.S. officials have suggested Iran’s complicity in the Hamas attack on Israel, concrete evidence of Iran’s role has yet to surface.
Political risks in the region have helped maintain crude oil prices at higher levels. Israel has reportedly razed sections of Gaza in retaliation for Hamas assaults. Furthermore, powerful Iraqi and Yemeni armed groups aligned with Iran have threatened to target U.S. interests with missiles and drones if the U.S. intervenes to support Israel.
Saudi Arabia, the world’s top oil exporter, stated it is working with regional and international partners to prevent an escalation of the situation in Gaza and neighboring areas while expressing support for efforts to stabilize oil markets.
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, commented, “In the actual geopolitical context, crude oil could further rise toward the $90-$100 per barrel range but a rise beyond the $100 level is unlikely with the morose global economic outlook.”
Furthermore, a weaker U.S. dollar, which reached a two-week low at 105.78, has contributed to increased oil prices. The market is awaiting the release of the U.S. Federal Reserve’s September policy meeting minutes, and several Fed officials have recently suggested that the central bank may not need to raise borrowing costs further. A weaker dollar makes crude oil cheaper for holders of other currencies, potentially boosting oil demand.
In more positive news for supply, Venezuela and the U.S. have made progress in talks that could provide sanctions relief to Caracas by allowing at least one additional foreign oil firm to take Venezuelan crude oil under certain conditions.
