The crude oil market jumped by nearly 4 per cent on Monday due to geopolitical tensions after the weekend attack by Hamas on Israel rekindled fears in the Middle East.
The two major crude oil benchmarks were up by more than 4 per cent, with Brent up by 4.17 per cent to $87.50 per barrel, and the US West Texas Intermediate (WTI) rising by 4.3 per cent to $86.00 per barrel.
Oil prices recouped on Monday some of last week’s losses, which had accumulated amid concerns about demand and economies with higher-for-longer interest rates.
The Saturday attack by Hamas on Israel and Israel’s declaration of war on Hamas reignited the always-simmering tensions in the Middle East, which had just seen a rapprochement in the relations between some Arab states and Israel.
According to reports, at least 700 Israelis were killed and dozens abducted when Hamas fighters surged across the border on Sunday, while more than 400 Gaza residents have died in retaliatory attacks launched by Israel.
Israeli Prime Minister, Mr Benjamin Netanyahu, said his nation is now at war, vowing what he called “mighty vengeance”.
Meanwhile, Iran’s President, Mr Ebrahim Raisi, telephoned the Hamas chief to congratulate him for the “victory”.
The immediate risk is that Israel concludes Iran was an active participant in the Hamas’ actions.
Iran has raised its oil production and exports in recent months, as the US hasn’t enforced the sanctions as strictly as before. Exports rose from 1.35 million barrels per day in April to a high of 1.79 million barrels per day in August, the most since November 2019.
The attack puzzles the market as the US was also negotiating the normalization of the relations between Israel and Saudi Arabia.
The US has always frowned upon Saudi Arabia’s decision to cut an additional 1 million barrels per day of output from July onwards, a move that coupled with a similar reduction of 300,000 barrels per day by Russia has tightened global oil supplies.
Although the attack has no effect on oil supply, the response by the market has been driven by traders adding a geopolitical risk premium back in the price of black gold.
