Israel/Hamas Conflict Escalates But Traders Reconsider Likelihood Of Supply Disruptions

Meanwhile, analysts bicker over what impact on crude the conflict will have: File Image/Pixabay

The escalating Israel/Hamas conflict on Tuesday did not cause a repeat of the previous session's huge oil price increases, as traders exhibited easing concerns about supply disruptions – a mindset not shared by everyone in the analytical community.

Brent settled down 50 cents to $87.65 per barrel, while West Texas Intermediate settled down 41 cents to $85.97.

Phil Flynn, senior market analyst at Price Futures Group Inc., remarked, "Today it's more like a ping pong game of fear-on, fear-off rather than trading on fundamentals."

Oil in the previous session gained over 4 percent on concerns that an escalating conflict could hurt Middle Eastern supply; however, Fiona Cincotta, senior financial markets analyst with City Index, observed on Tuesday that "For now, the market seems to accept that oil flows will not be directly affected, with no proof that there will be a meaningful reduction in oil exports."

Still, the conflict enabled finger-pointers to vent their frustrations over policy in general: U.S. president Joe Biden's administration came under fire for depleting that country's Strategic Petroleum Reserve to its lowest level in four decades.

Ben Lieberman, a senior fellow at the Competitive Enterprise Institute, told media, "There are a lot of reasons why the Biden administration should not have used the SPR to try to bring down prices — one of which is that the SPR then isn't available if something serious happens…..we're facing that right now.

"The point was for the nation to have an emergency oil supply, and it's especially foolish given the backdrop of this administration's hostility to domestic oil production."

Also, not everyone agreed that oil flows would not be affected by the Palestine/Israel conflict: Vivek Dhar, an energy analyst at CBA, stated that "We continue to believe that Brent oil will ultimately stabilise between $90-$100/bbl in Q4 2023" and added that the conflict could push Brent above the $100 mark.

Dennis Kissler, senior vice president for trading at BOK Financial Securities, agreed, stating that, "If we continue to see escalation between Israel and Hamas, it's just a matter of time until it reaches into oil-producing areas."

All but overlooked in Tuesday's oil news was China, which reportedly is considering new measures to help its economy meet the country's growth target; according to people familiar with the matter an announcement could be made this month.

Also on Tuesday, the Energy Information Administration reported that U.S. crude oil exports hit record highs in the first half of the year, averaging 3.99 million barrels per day (bpd)—up nearly 20 percent from the first half of 2022

The largest share of the crude was exported to Europe at 1.75 million bpd; Asia was the second-largest destination 1.68 million bpd.