Brent steady amid momentary pause in Middle Eastern conflict

The front-month ICE Brent contract has gained $0.01/bbl on the day, to trade at $89.80/bbl at 09.00 GMT.

PHOTO: Oil pump jacks in the desert of Bahrain, Middle East. Getty Images

Upward pressure:

Brent futures remained well supported this week as tension between Israel and Hamas militants grew. Mounting fears of supply disruptions in the Middle East if the conflict escalates have helped oil prices to remain at elevated levels.

Last week, Israel’s Prime Minister Benjamin Netanyahu said in a TV interview that the country was preparing for a “ground invasion” of the Gaza Strip for an upfront combat with Hamas militants. Oil prices surged on this news amid speculations that Israel’s move could trigger supply disruptions in the Middle East.

Meanwhile, leaders from the neighbouring Arab countries including Iran, Jordan, Egypt, and Lebanon have criticized Israel’s retaliation to the attack that took place on 7 October and have blamed Jerusalem for causing “genocides” in Gaza.

Brent has been boosted by growing fears in the oil market that Iran’s involvement in the conflict can further prompt the US to roll out stricter sanctions on Iranian oil. 

“In a supply ‘downside’ scenario where there are additional supply disruptions, such as increased Western [US] scrutiny of Iran's oil exports, Brent oil prices are expected to increase by $5/bbl in 2024Q1, reaching $100/bbl,” said SPI Asset Management’s managing partner Stephen Innes. “By December 2024, the increase could reach $10/bbl,” he further added.

Downward pressure:

Brent's rally has started fading amid expectations that Israel would postpone its plan of a ground invasion of the Gaza Strip. This comes after the US and other Western allies urged Israel to hold off the ground attack on Gaza.

“The situation in Gaza and Israel which has previously triggered a surge in oil prices and is now being unwound due to the perception that the risks of a wider conflict are falling,” said OANDA’s commodities market analyst Craig Erlam.

Meanwhile, the US Energy Information Administration (EIA) reported an unexpected 1.37 million bbls-build in commercial US crude inventories in the week ended 20 October. The EIA figures ran counter to the American Petroleum Institute's (API) estimates that showed a fall in US crude inventories during the same week.

“The [oil] market did not seem to like the fact that the Energy Information Administration report was not nearly as bullish as the American Petroleum Institute report the day before,” said Price Futures Group’s senior market analyst Phil Flynn.

By Aparupa Mazumder

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