Israel's Retribution For Iran Missile Attack Could Cause Oil Prices To Soar: Analysts

Rapidan Energy calculated that oil could climb by $10-per barrel increments: File Image/Pixabay

Iran's botched missile strike on Israel and the latter vowing retribution may prove to have legs for suddenly bullish oil traders, who on Wednesday caused the commodity to log a third day of gains – and despite a build up in U.S. crude stocks.

Brent settled up 34 cents at $73.90 per barrel, while West Texas Intermediate settled up 27 cents at $70.10 per barrel.

Israeli on Wednesday sent regular infantry and armored units to join ground operations in southern Lebanon against Iran-backed Hezbollah, while analysts noted that the country's vowed retaliation (for which the U.S. has pledged support) could result in an attack on Iran's oil infrastructure; consequently, Tehran could attempt strike's on Saudi oil facilities.

Capital Economics stated in a note, "A major escalation by Iran risks bringing the U.S. into the war…..Iran accounts for about 4 percent of global oil output, but an important consideration will be whether Saudi Arabia increases production if Iranian supplies were disrupted."

Citigroup Inc. analysts calculated that Israel attacking Iran's oil-exporting capacity could remove 1.5 million barrels per day (bpd) from the market, and if minor infrastructure such as storage facilities were destroyed, then between 300,000 and 450,000 bpd could be lost.

Bob McNally, president of Rapidan Energy, said if Iran's oil exports were taken offline, prices would likely jump by at least $5 per barrel, and if Iran retaliated by tying up the 13 million bpd of crude that flows through the Persian Gulf, oil prices could climb higher in increments of $10 per barrel.

Andy Critchlow, EMEA head of news at S&P Global Commodity Insights, concluded, "These are dangerous times for oil markets at the moment; it's hard for anyone in the market to really gauge the direction when you look at the amount of geopolitical risk that is out there."

Capping gains on Wednesday were the latest weekly figures from the Energy Information Administration, which showed that U.S. crude inventories rose by 3.9 million barrels to 417 million barrels in the week ended Sept. 27, compared with expectations for a 1.3 million barrel draw; gasoline stocks also rose last week, while distillates fell.