The oil futures market experienced a slight retreat on Tuesday, as it consolidated following a surge in the previous session. This surge was in response to a weekend attack on Israel by the Palestinian militant group Hamas, which raised concerns about a potential broader regional conflict.
- West Texas Intermediate crude for November delivery (CL00, -0.56% CL.1, -0.56% CLX23, -0.56%) dropped by 15 cents, or 0.2%, to $86.23 per barrel on the New York Mercantile Exchange.
- December Brent crude (BRN00, -0.52% BRNZ23, -0.52%), the global benchmark, declined by 22 cents, or 0.3%, to $87.93 per barrel on ICE Futures Europe.
Both WTI and Brent witnessed a significant surge of over 4% on Monday due to the wave of attacks by Hamas on Saturday. These attacks were followed by Israel's retaliatory strikes on Gaza, ultimately leading to their formal declaration of war against Hamas.
It's important to note that oil prices had fallen considerably in the previous week after reaching 2023 highs, with Brent just under $100 per barrel and WTI above $95 per barrel in late September.
While Israel's oil production is relatively small, The Wall Street Journal reported on Sunday that Iranian military officials had assisted Hamas in planning and coordinating the attack.
Iran congratulated Hamas on the attack but denied any involvement in its planning.
The Impact of the Israel-Hamas War on Oil Prices
In recent months, Iranian crude output has reached its highest level since the reinstatement of U.S. sanctions in 2018. Carsten Fritsch, a commodity analyst at Commerzbank, reported that Iranian crude output hit 3.1 million barrels a day (mbd) in August. Furthermore, it is estimated that Iranian crude exports were as high as 2 mbd during that same time frame.
One possible reason for this increase in Iranian production is the perceived laissez-faire approach to sanctions enforcement by the United States. However, Fritsch believes that this policy is unlikely to continue due to Iran's open support for Hamas. Full enforcement of sanctions could potentially reduce Iranian exports by up to 1 mbd.
Despite the potential impact on the oil market, Fritsch does not anticipate a severe shortage that would significantly drive up prices. Therefore, while the ongoing Israel-Hamas war may affect oil prices to some extent, it is not expected to result in a dramatic price surge.
To stay updated on the latest developments and their potential effects on the global economy, keep an eye on oil prices.