Concerns over potential oil disruptions in the Middle East due to the Israel-Gaza conflict roil global oil markets.
Brent crude surged 2.25% to reach $86.83, while US oil prices also rose. The spike in oil prices was a result of the Hamas attack on Israel and the subsequent Israeli bombardment of Gaza, which international human rights groups have called the largest open-air prison in the world. Gaza has been under an Israeli land and sea blockade for over 16 years. The Israeli airstrikes, which began three days ago, have so far killed 830 and wounded 4,250, according to the Palestinian health ministry.
Israel and Palestine do not produce oil themselves. However, the Middle East region accounts for nearly one-third of the world’s oil supply as a major player in global energy markets.
Israel issued an order to Chevron, a US oil company, to temporarily halt production at the Tamar natural gas field, located off Israel’s northern coast. This decision was made due to the field’s vulnerability to rocket attacks from the Gaza Strip. The Israeli energy ministry has previously closed the Tamar field during periods of unrest, citing alternative fuel sources to meet the country’s energy demands.
Despite the pause in Tamar’s operations, Israel’s largest offshore gas field, Leviathan, continues to operate normally.
Energy analyst Saul Kavonic explained that the surge in global oil prices is primarily a result of concerns about the potential for a broader conflict involving major oil-producing nations like Iran and Saudi Arabia. This geopolitical uncertainty is causing oil prices to skyrocket.
On Monday morning, the price of West Texas Intermediate (WTI) crude, the US benchmark for oil, rose by $2.50 per barrel to reach $85.30. Kavonic noted that if the Middle East conflict escalates further, it could put up to 3% of the global oil supply at risk.
Caroline Bain, the chief commodities economist at Capital Economics, anticipates that in the last three months of the year, oil demand will outstrip supply, leading to further increases in oil prices.
Saul Kavonic highlighted that any disruptions in the passage through the Strait of Hormuz, a vital oil trading route, could jeopardise approximately one-fifth of the world’s oil supply. This would have significant implications, as the Gulf region heavily relies on oil and gas production for its economies. The Strait of Hormuz is crucial for major oil-exporting countries in the Gulf region.
James Cheo, a representative from HSBC bank, noted that the uncertainty surrounding the evolving events has left investors nervous, leading them to seek refuge in US Treasury bonds and the US dollar, traditionally considered safe-haven assets during times of crisis.
The recent surge in oil prices comes after oil prices reached over $120 a barrel in June the previous year following Russia’s invasion of Ukraine in February 2022. Since then, oil prices have been on a rollercoaster ride, dropping to slightly above $70 a barrel in May of this year. Producers have been implementing output restrictions to stabilise the market, with Saudi Arabia announcing plans to cut its oil production by one million barrels per day in July.
OPEC+ collectively accounts for approximately 40% of the world’s crude oil production and its decisions influence global oil prices to maintain the balance between supply and demand.
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