Oil prices experienced a surge on Tuesday following a significant drop the day prior, signaling growing investor impatience with the ongoing Israel-Hamas conflict. West Texas Intermediate (WTI) crude oil saw a notable uptick, nearing $83 per barrel, recuperating from Monday’s sharp decline that nullified the gains witnessed after the October 7th attack on Israel. Simultaneously, Brent crude traded at approximately $88.
While concerns regarding an escalation of the conflict and its potential impact on crude supplies initially prevailed, recent developments suggest a shift in sentiment. Israeli Prime Minister Benjamin Netanyahu’s dismissal of a cease-fire, coupled with Saudi Arabia’s heightened military alert status following clashes with Iran-backed Houthi rebels in Yemen, have contributed to a somewhat stabilized outlook.
Recent data from Asia indicates a global economic slowdown, with China’s manufacturing sector regressing into contraction. Furthermore, BP Plc reported that fuel retail margins face challenges due to oversupply in the gasoline and diesel markets.
Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd., emphasized, “The possibility of reduction in Middle East oil supply, consequently, has not evaporated and should it materialize oil prices will rally towards their annual peaks and possibly even above depending on the extent of the setback.”
A narrowing in WTI’s prompt spread, which signifies the difference between its two nearest contracts, suggests a less stringent near-term outlook. This closely monitored differential has dwindled to 61 cents a barrel in backwardation, down from approximately $2 a barrel at the close of September.
The Israel-Hamas conflict unfolds against a backdrop of declining demand, with oil prices expected to stabilize in October as the risk premium linked to the conflict gradually diminishes. The imminent US election, deemed too close to call, introduces an element of unpredictability to the market. The policies enacted by the eventual President will play a pivotal role in shaping the oil market’s trajectory.
Amidst the uncertainties, one certainty remains: the world closely monitors the Israel-Hamas conflict as it enters its fourth week.
Soure: Bloomberg
