The Israeli-Hamas conflict prompted Iran to seek an embargo on Israel, and as a result, US stocks fell, indicating a rise in demand for crude oil, which caused oil prices to soar on Wednesday.
Crude oil for Brent (BZ=F) surged by about 2%, staying above $91 per barrel. The price of West Texas Intermediate (CL=F) increased by over 2% as well, hitting $88 per barrel.
Iran’s foreign minister demanded that Muslim nations engage in a harsh boycott of Israel in response to the explosion at a Gaza hospital, for which both sides are blaming the other.
The appeal is made in favour of Israel, coinciding with President Biden’s visit in the area. President Biden’s meeting with the leaders of the Palestinian Authority, Jordan, and Egypt was cancelled. The president’s attempts to keep the situation under control and prevent the conflict from spreading are not looking good in light of the cancellation.
Rebecca Babin, an energy trader at CIBC Private Wealth, stated earlier this week on Yahoo Finance Live that “Iran’s involvement is the key focus for the crude market and this is essentially because they are a huge crude producer.”
Concerns that an interruption to Iran’s daily supply of about 3.2 million barrels would affect the price of petroleum globally caused prices to spike last week.
I predict a 20%–25% spike in oil prices if one million barrels per day are removed from the market.” Yahoo Finance was informed by Ed Hirs, an energy fellow and economist at the University of Houston.
indicated a rise in oil demand as the nation’s largest storage hub, Cushing, Oklahoma, saw its oil stockpiles fall to their lowest point since 2014. The drawdown in stockpiles occurs at the same time as US oil shipments soar to a June high.
“Inventories in Cushing, Oklahoma, have stayed remarkably low for the majority of 2023. According to Dennis Kissler, senior vice president of BOK Financial’s Trading Division, “high global fuel demand has pulled on US exports, where a lot of that oil is pulled from storage and gathering systems in Cushing.” Kissler made this statement to Yahoo Finance.
The crude market is still in very good shape fundamentally, according to Babin of CIBC Private Wealth. “We are in a place where supply and demand are very closely balanced, if not in a slight deficit.”
Due to ongoing production restrictions by OPEC+ and Saudi Arabia, which are anticipated to be carried out unilaterally through the end of the year, oil prices spiked in the third quarter of this year.
“The opinion [about oil prices] is much dependent on what [OPEC+] does next. I believe they remain firm, and the oil market is still being very strongly maintained around the low-to mid-$80s,” stated Babin.
“[If] we get into the $90s we do start to worry about demand destruction, which I think is a very real thing.”
In response to the increased price of oil, energy stocks saw a surge on Wednesday as well, with ExxonMobil (XOM) and Chevron (CVX) also climbing. With almost 1.5% gain, the S&P 500 Energy Select ETF (XLE) was up.