Oil prices experienced a dip on Monday after significant gains last week. Investors are closely monitoring the Israel-Hamas conflict, contemplating whether it could escalate and potentially disrupt global oil supplies. Brent futures fell by 0.4%, down 33 cents to $90.56 per barrel, while U.S. West Texas Intermediate (WTI) crude decreased by 0.3% or 26 cents to $87.43 a barrel.
Last Friday, both benchmarks recorded almost 6% gains, their highest daily percentage increase since April, as investors factored in the possibility of a more extensive Middle East conflict. Over the week, Brent advanced by 7.5%, and WTI increased by 5.9%.
The geopolitical situation involving the war between Hamas and Israel presents a significant risk to oil markets. Although Israel is not a major oil producer, concerns are growing about the potential escalation of conflict, including Iran’s involvement. Market participants are assessing the implications of a broader conflict on oil supplies from major oil-producing countries in the region, including Saudi Arabia, Iran, and the United Arab Emirates.
If Iran is found to be directly involved in the Hamas attack, there could be a full enforcement of U.S. sanctions on Iran’s oil exports, potentially impacting global oil supply. The situation is of concern, as the U.S. has shown flexibility in enforcing sanctions on Iran’s oil exports this year to improve diplomatic relations with the country.
Israel’s Prime Minister Benjamin Netanyahu has vowed to “demolish Hamas,” with Israel’s troops preparing for action in the Gaza Strip. Iran has warned that the situation could spiral out of control with “far-reaching consequences” if Israel’s actions are not stopped.
In light of escalating fears, U.S. Secretary of State Antony Blinken is returning to Israel to discuss the situation. Additionally, the U.S. recently imposed sanctions on tankers carrying Russian oil priced above the G7’s price cap of $60 a barrel in an effort to close loopholes in the mechanism designed to punish Russia for its invasion of Ukraine.
As Russia is one of the world’s top crude exporters, tighter U.S. scrutiny of its shipments has the potential to curtail oil supply. The situation remains fluid, with market participants closely watching the conflict’s development and its impact on oil markets.
