Oil prices dropped this Monday, and Israel’s advancement in Gaza has yet to prompt significant military retaliation from Iran or its proxies. The global benchmark Brent remained below $90 per barrel after rising nearly 3% on Friday, the same day an Israeli defense spokesperson stated that the country’s forces were expanding their activity in the Gaza Strip.
WTI also declined and recently traded around $84 dollars. Ole Hansen, Head of Commodity Strategy at Saxo Bank A/S, noted that Friday’s surge was a precautionary move by traders, concerned about a potential escalation over the weekend due to the conflict.
Hedge funds have cut their net long positions as “weakening fundamentals continue to weigh on the market.” The oil markets are on edge due to the conflict in Gaza, given its potential to extend beyond the enclave and Israel, jeopardizing oil flows. The Middle East accounts for a third of the world’s oil supply, and there is fear that an escalation in the war could lead to counter-oil attacks, threats to maritime chokepoints, and a reduction in exports from Tehran.
Before crude futures began trading in Asia on Monday, both Tehran and Washington had warned that the conflict could still escalate. Iran stated that Israel’s actions could “force everyone to take action.” Meanwhile, the United States sees a “heightened risk” of regional contagion, according to National Security Advisor Jake Sullivan. Iran is the primary backer of Hamas, designated a terrorist group by the United States and the European Union. Tehran also supports Hezbollah in Lebanon, which could potentially open a second front in the conflict.
The World Bank cautioned that even a minor disruption in oil supply due to the conflict’s escalation could remove between 500,000 and 2 million barrels per day from global markets. If this occurs, prices could rise to between $93 and $102 per barrel.
On another note, a Bloomberg survey indicated that Saudi Arabia may refrain from increasing its flagship shipments. This aligns with the rise in oil prices for Asian customers in December for the first time in six months, as refinery margins weaken across the region.
Published by The Usa Herald, a news and information agency.