Oil prices rose as the market awaited how Iran would respond to the killing of Hezbollah leader Hassan Nasrallah by Israel, while investors priced in moves by China to shore up its economy, the world's biggest oil importer.
Brent crude for December delivery — the most active contract — is above $73 a barrel, while West Texas Intermediate is trading above $69. Nasrallah was killed in an airstrike on the Lebanese capital Beirut, dealing a major blow to the group and its patron Tehran. Israeli jets have also struck targets in Yemen after Iran-backed Houthi rebels launched attacks on the country this month.
Crude has remained subdued this year, as rising tensions in the Middle East have yet to escalate into a full-blown confrontation that could threaten the region’s oil supplies. At the same time, global production remains ample, with OPEC+ planning to ease production curbs, and China’s slowdown has hurt demand, despite Beijing’s recent stimulus.
The oil market has become increasingly passive to developments in the Middle East, said Warren Patterson, head of commodity strategy at ING. “The conflict has been going on for over a year with no impact on oil production, while OPEC continues to sit on a large amount of spare capacity. Instead, it appears to be support measures coming from China that are providing support,” he added.
Iran appears in no hurry to escalate the conflict with Israel, which erupted against the backdrop of the war in Gaza between the Jewish state and Hamas, which is also sponsored by Tehran. President Masoud Pezeshkian stopped short of pledging a direct attack on Israel and was relatively restrained in his speech at the United Nations.
Threat to actual oil supplies
Since the Gaza war broke out almost a year ago, oil traders have been on alert for actual supply disruptions, especially at times of heightened tensions between Israel and Iran. While Houthi attacks in the Red Sea have forced some tankers to detour around South Africa — lengthening journeys — crude production from the region has been largely unscathed.
The recent shift in the course of the conflict in the Middle East has spurred more than usual trading, with more than 55,000 Brent crude contracts changing hands in the first four hours of the session.
Meanwhile, spreads suggest that market activity in terms of liquidity and trading volume has declined, with the spot spread for Brent crude - the gap between the two nearest contracts - at 44 cents a barrel, compared to 69 cents a week ago.
“Some oil market participants will shrug off this escalation given that there has been no major supply disruption so far and Iran has shown no appetite to enter the nearly year-long conflict,” analysts at RBC Capital Markets LLC, including Helima Croft, said in a note. “However, it is very difficult to know where this regional conflict is headed, and whether this is the beginning of the end, or the end of the beginning.”
