Oil services company Panther claims on its website that there is never a dull moment in the oilfield. Naturally, the oil markets follow suit, as they rarely experience a day or even few hours without drama.
One of those days was Friday. As the Middle East conflict entered a new, heightened phase, crude prices rose as much as 7% for the week. This was due to Israel’s announcement that it will launch a ground attack on Gaza one week into its renewed war with the Palestinian militant group Hamas. The week ended with the same heightened tensions as it began. The United States and its partners imposed a $60 per barrel restriction on oil sales, and the White House issued the first sanctions against corporations that help Russia sell their oil at a higher price.
Following a session high of $87.83, New York-traded WTI crude for delivery in November closed up $4.78, or 5.8%, at $87.69 per barrel. The benchmark US oil price ended the week up just under 6%.
The most active December contract for London-traded Brent crude ended up $4.89, or 5.7%, at $90.89, moving back above the $90-per-barrel sweet spot that oil bulls have been lusting after. The global crude benchmark reached its top throughout the day at $90.67.
Between Friday and Monday, the market fell on the biggest build-up of US crude stocks since February and a new record for output that surpassed the pre-pandemic one, which was set off by Hamas’s initial attacks on Israel in their current war.
Additionally, according to Reuters, at least four refiners in North Asia received notification from Saudi state oil company Aramco (TADAWUL:2222) that it will provide them with the entire contractual volumes nominated for November. This cast doubt on the idea that Saudi Arabia’s top objective was to maintain a tight market through production curbs rather than guarantee abundant supplies when required.
The Israel-Hamas conflict and the government response to Russia’s violation of the G7 oil price ceiling caused prices to spike higher again, potentially exacerbating the myth of a “tight oil market” that is ingrained in the minds of oil traders more than anything else.
The Mullah leadership in Tehran appeared keen to enter the Middle East conflict, despite being kept at back for the time being by both Israel and the United States. This added to the confusion.
In his market commentary on Friday, Scott Sheffield, a broker and oil futures commentator at ICAP (LON:NXGN) in Durham, North Carolina, emphasised this point. He noted that the most recent rally “appears to be correlated with Iran making statements supporting Hamas and stating that a “new front“ may open if Israel war crimes continue, while the media is blaming it on tighter sanctions.”
The world’s fifth-largest oil exporter, Iran, is being intently scrutinised for its potential role in any escalating Israel-Hamas conflict.
Similar to Russia, Iran’s oil exports are subject to sanctions; yet, since late 2022, Washington has ignored the Islamic Republic of Iran’s soaring crude shipments. At the time, Washington prioritised an informal détente with Tehran in order to increase global oil supplies and counteract output reductions by OPEC+.
Because of this, Iranian crude production is predicted to have increased by around 700,000 barrels per day this year, making it the second-largest source of additional supply in 2023—after US shale oil.