Worries over rising Middle East tensions push oil prices up 1%

Business a.m

Investors, alarmed by reports of U.S strikes on Iranian targets in Syria, brought up oil futures on Friday, pushing prices up by around 1% per barrel.

The U.S military was said to have struck targets in Syria, fueling speculation of a conflict with Iran, a major oil producer. Such an event could have a significant impact on global oil markets and prices.

In the Brent crude futures market, the December contract was up $0.93, or approximately 1.1 per cent, to trade at $88.86 per barrel. Similarly, the U.S. West Texas Intermediate contract for December was trading $0.91 higher, or around 1.1 per cent, at $84.12 per barrel. Both contracts had hit highs of more than $2 per barrel earlier in the trading session, indicating the market’s unease over the prospect of further escalation in the Middle East.

In the latest developments of the war, U.S. fighter jets reportedly struck weapons and ammunition facilities in Syria on Friday in response to recent attacks on U.S. forces by militia backed by Iran. The attacks were part of a wave of violence that has escalated since the recent conflict between Israel and the Palestinian militant group Hamas.

In a separate incident, projectiles reportedly hit two Egyptian Red Sea towns on Friday, causing injuries to several people, raising fears of regional spillover from the conflict.

In related news, the Israeli military is said to have carried out its most extensive ground operation in Gaza so far in its 20-day conflict with Hamas, following comments from Prime Minister Benjamin Netanyahu that the country’s troops were still preparing for a full ground invasion. The conflict, which began on May 10, has so far involved mostly aerial strikes, but the recent escalation has raised the prospect of a broader conflict that could extend beyond Gaza.

Analysts have noted that although the current conflict has not directly impacted oil supplies, the region’s fragile geopolitical situation could potentially disrupt exports from key crude producers such as Iran, which has ties to Hamas.

Helima Croft, an analyst at RBC Capital, cautioned that the situation remains highly unpredictable and volatile, making it difficult to make accurate forecasts about the future course of the conflict. She highlighted the lack of clarity around the red lines that could trigger further involvement from other countries in the region.

Goldman Sachs analysts have reiterated their forecast of Brent crude prices reaching $95 per barrel in the first quarter of 2024, though they noted that lower Iranian exports could cause baseline prices to increase by 5%. The analysts also noted that the potential for an interruption of trade through the Strait of Hormuz, which accounts for 17% of global oil production, could cause prices to jump by 20%. However, they cautioned that this scenario was less likely.