The oil futures market experienced a boost on Friday, as prices continued to climb for the second consecutive week. This upward trend comes in the aftermath of the October 7th attack on Israel by Hamas, which ignited a war that now poses a substantial threat to the stability of the entire region. As tensions escalate, concerns over potential disruptions to the crude supply have investors closely monitoring the market.
West Texas Intermediate crude for November delivery (CL.1, +1.38% CLX23, +1.38%) saw a $1.23 increase, or 1.4%, reaching $90.66 per barrel on the New York Mercantile Exchange. This puts it on track for a weekly gain of 3.3%. The December WTI (CLZ23, +1.36%), the most actively traded contract (CL00, +1.36%), surged by $1.39, or 1.6%, to settle at $89.76 per barrel.
December Brent crude (BRN00, +1.21% BRNZ23, +1.21%), the global benchmark, rose by $1.25, or 1.4%, trading at $93.63 per barrel on ICE Futures Europe.
November gasoline (RBX23, +1.35%) experienced a 1.4% increase, reaching $2.395 per gallon and is set to achieve a solid 5.7% weekly gain. Conversely, November heating oil (HOX23, +1.25%) observed a 0.9% uptick to reach $3.203 per gallon but is poised for a 3.3% weekly decline.
November natural gas (NGX23, +0.07%), however, encountered a slight setback, losing 0.2% to settle at $2.95 per million British thermal units, resulting in a nearly 9% weekly slide.
The surge in oil prices was instigated by an incident on Thursday, where a U.S. Navy warship successfully intercepted multiple missiles near Yemen. A Pentagon press secretary revealed that a Navy destroyer was able to thwart three missiles and several drones launched by Iran-backed Houthi forces in Yemen. Despite the successful interception, the exact target of these projectiles remains undisclosed.
As the situation in the Middle East intensifies, the oil market remains highly susceptible to these geopolitical developments, with investors closely watching for any potential impacts on supply and demand dynamics.
Israeli Ground Invasion of Gaza Drives Up Crude Prices
Analysts suggest that expectations of an imminent Israeli ground invasion of Gaza have contributed to the recent increase in crude oil prices. This rise in tension across the region has created a certain geopolitical risk premium, impacting the oil market.
According to Barbara Lambrecht, a commodity analyst at Commerzbank, the conflict has not yet affected the supply picture. However, due to the tense situation in the Middle East, there is a justified geopolitical risk premium in the market. Lambrecht emphasizes that oil prices are expected to remain well supported, especially considering the current significant undersupply in the market.
Lack of supply is further highlighted by the fact that US crude-oil stocks are now nearly 5% lower than usual for this time of year, compared to February when they stood 10% above the five-year average.
Additionally, the US Energy Department has announced plans to buy oil for its Strategic Petroleum Reserve through at least May 2024. The department will commence monthly solicitations and has requested up to 6 million barrels of oil for delivery in December and January. Notably, the government agency intends to purchase oil at a price of $79 a barrel or below, which is lower than the average $95 received for emergency SPR sales in 2022.
Note: The chart above illustrates the disparity in US crude-oil stocks compared to the five-year average.