Israel/Iran Hostilities Cause Oil to Notch Biggest Weekly Gain In Over A Year

Meanwhile, analysts disagree about the state of the oil market: File Image/Pixabay

Unsurprisingly given trading behaviour this week, oil achieved its biggest weekly gains in over year due to fear that sky-high hostilities between Israel and Iran will lead to military strikes that take out key production facilities.

Brent gained over 8 percent, the most in a week since January 2023, while West Texas Intermediate gained 9.1 percent, the most since March 2023.

As for daily trading, gains were muted allegedly due to U.S. president Joe Biden discouraging Israel from attacking Iranian oil facilities: Brent settled up 43 cents at $78.05 per barrel, while WTI settled up 67 cents at $74.38 per barrel.

JPMorgan commodities analysts wrote on Friday that attacking Iran's oil facilities would not be Israel's preferred course of retaliation for earlier rocket attacks, but they added that global inventories are at low levels, meaning prices will likely be elevated until the conflict is resolved.

Kpler figures were cited, showing that total inventories are at 4.4 million barrels, the lowest on record.

Bob McNally, president of Rapidan Energy Group, remarked, "I do think Israel will be respectful of global concerns about an oil price shock when it conducts its retaliation…….they are going to hit Iran big, but I think they will probably avoid, at least in this first round, the facilities that enable the 1.8 million barrels a day of crude that Iran has been exporting."

But McNally added, "But Israel has been surprising everybody by acting more aggressively than everyone expected, so, if I am wrong, it's probably in the direction of a bigger hit to oil."

According to data from Bloomberg, Iran's crude output over the past two years has increased by one-third to 3.3 million barrels per day (bpd) on average, driven by discounted sales primarily to Chinese buyers.

One thing to geopolitical tensions has caused is conflicting views on the state of the oil market: while JPMorgan holds that global inventories are critically low, Bloomberg stated that "the oil market is amply supplied based on conditions right now" and cited the Organization of the Petroleum Exporting Countries' (OPEC) ability to put more barrels on the market if required (6 million bpd is said to be the cartel's spare capacity), Libya production recently resuming production, and U.S. crude inventories unexpectedly rising by nearly 3.9 million barrels last week.

Also, despite fears of skyrocketing prices, it's worth noting that this week's surge was from a low baseline, with prices in September hitting their lowest level in nearly three years due to worries about increasing output and soft demand in China.