Oil Prices Surge Amid Middle East Tensions and Supply Concerns

Oil Prices Surge Amid Middle East Tensions and Supply Concerns

Oil Prices Rise on Supply Fears

On Thursday, oil prices  surge  as investors became increasingly concerned that the intensifying conflict in the Middle East could severely disrupt the flow of crude oil from the region. By 11:36 a.m. EDT, Brent crude futures surged $2.82 (3.82%), reaching $76.72 per barrel, while U.S. West Texas Intermediate (WTI) crude futures climbed $2.85 (4.07%) to $72.95 per barrel.

Both Brent and WTI futures hit highs during the session, with Brent reaching an intraday peak of $77.65 per barrel—the strongest since late August—and WTI spiking to $73.95, its highest in a month.

Escalating Middle East Conflict Raises Concerns

Market anxieties intensified with the possibility of Israel targeting Iranian oil infrastructure, which could trigger retaliation from Iran. “This is going to really test the mettle of the market because up until now the risk to supply has been downplayed,” said Phil Flynn, senior analyst at Price Futures Group. Flynn cautioned that the market should prepare for heightened volatility as tensions increase.

Panmure Gordon analyst Ashley Kelty expressed concerns over potential Iranian retaliation, including the possible blockage of the critical Strait of Hormuz or attacks on Saudi infrastructure, echoing similar incidents from 2019.

Key Chokepoint at Risk

The Strait of Hormuz, through which a fifth of the world’s daily oil supply passes, remains a vital logistical chokepoint. Any disruption in this key area could significantly impact global oil supplies, further stoking market fears.

Ministers from Gulf Arab states and Iran recently met in Qatar, seeking to de-escalate tensions and ensure that oil facilities in the Gulf region remain unaffected. Despite the meeting, the risk of further escalation continues to weigh on the market.

Heightened Conflict in the Region

The ongoing conflict between Israel and Iran-backed Hezbollah escalated as Israel bombed Beirut, killing six people, after suffering its deadliest day of clashes along the Lebanese front in a year. Israeli Prime Minister Benjamin Netanyahu declared that Iran would “pay for its missile attack,” while Tehran warned of “vast destruction” in response to any Israeli retaliation.

“The intensifying conflict in the Middle East is generating significant supply concerns in the global crude market,” said Claudio Galimberti, chief economist at Rystad Energy, further stressing the heightened risk of supply disruptions.

Market Adjustments and U.S. Inventories

While rising tensions in the Middle East continue to drive oil prices upward, other market factors are tempering gains. The National Oil Corporation of Libya lifted its force majeure at all oilfields and terminals, potentially ending a crisis that had previously reduced oil output in the region.

Moreover, U.S. crude inventories rose by 3.9 million barrels in the week ending September 27, compared to an expected decline of 1.3 million barrels. ANZ analysts noted that swelling U.S. inventories provided evidence that the global oil market remains well-supplied, despite the looming threat of disruptions.

OPEC’s Role in Stabilizing Supply

Concerns about supply disruptions from Iran have also been moderated by OPEC’s ability to tap into its spare production capacity. OPEC is believed to have enough capacity to compensate for a full loss of Iranian supply, should Israel target the country’s oil facilities.