Since the outbreak of war between Israel and Hamas in October 2023, oil prices have experienced a bizarre year.
Hamas is a Palestinian militant and political group that launched an assault on Israel’s south exactly a year before, killing over 1,200.
The war between Israel and Hamas began then. It continues to rage.
Although Israel and Palestine do not produce oil, the Middle East conflict has always had the potential to become more widespread, with prominent oil producing countries, such as Saudi Arabia and Iraq, in the area.
More than half the world’s reserves of oil are found in the Middle East.
Since October 2023, oil prices are down.
Even with the conflict that continues between Israel and Hamas today, prices of oil have fallen since last year.
Brent crude has dropped by nearly 10% in price since the start of the conflict, while West Texas Intermediate, the US benchmark oil, is down 12%.
Brent crude oil reached $93.79 a barrel on October 20, 2023. This is the highest price in the past 12 months.
Israel’s large-scale assault on the Gaza Strip, in Palestine marked the start of the invasion. Prices rose.
WTI’s price also reached $90.78 on October 20, last year. It has not been able to surpass this level since.
The two oil benchmarks were hovering between $80 and $90 for the first half month of the Israel/Hamas conflict.
However, a poor oil demand in the world and no disruptions of oil supplies from the Middle East started to affect sentiments. ANZ Research stated in a recent report that:
The oil market, however, has seen the threat of disruptions in supply as being low as both sides have worked hard to limit the conflict.
Oil prices are more resistant to the news of an Israel-Hamas conflict since the start of 2024.
In recent months, the geopolitical premium for oil has waned as investors have turned their attention towards demand issues.
Demand is impacted by the high demand for goods and low demand.
Oil prices fell in the past few months as the demand for oil from China, the world’s largest consumer, was lagging. Oil bulls have been concerned about the economy of China as it tries to get out of its crisis.
The US and other major oil producers have also contributed to the slowdown of oil.
The top energy companies have cut their predictions for the growth of oil demand this year and next. They cited a slow recovery in China’s economy, and an adequate supply from producers.
OPEC+ also has sufficient spare capacity to produce crude oil in order to compensate for any supply disruptions that may occur in the Middle East.
OPEC+ is withholding approximately 5.86 million barrels of oil per day from the market. This is almost 6% of global oil supply.
Middle East tensions are renewed by Iran’s attacks on Israel
In response to the death of Hezbollah’s prominent leader who was backed by Tehran, Iran launched ballistic missiles at Israel on Tuesday last week, which escalated conflict in the area twofold.
Last week, oil prices rose 8% as tensions increased and traders were waiting for Israel’s response to Iran’s attacks by targeting Tehran’s oil facilities.
Brent oil prices fell below 70 dollars per barrel for the first since August 2021 before last week.
The escalation last week showed that despite the fact there haven’t been any significant interruptions in Middle East oil supplies since October of 2016, a larger conflict could pose a grave threat.
Iraq, and possibly other oil-producing countries in the area could get involved with the Israel/Hamas conflict due to Iran’s involvement.
Approximately 17 million barrels of crude oil per day transit the Strait of Hormuz, which connects the Persian Gulf to the Gulf of Oman.
If the situation escalates, it is possible that oil tankers passing through the Strait of Hormuz will be attacked and supplies could also be disrupted.
Oil is on the rise again as we finish a year-long conflict between Israel and Hamas. Other countries from the region, such as Lebanon and Iran, are also involved this time.
According to ANZ Research the situation may get out of hand if Iraq enters the conflict. Iraq is the world’s second-largest oil producer, after Saudi Arabia. It is also home to a number of proxy groups backed by Iran.
Brent prices are currently $80.58 per barrel, an increase of 3.5%. WTI is 3.6% more expensive at $77.
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