Oil Soars Over 4% As U.S. Military Might Heads To Middle East

Analysts debate the ways a greater war could disrupt supplies: File Image/Pixabay

The week started with a 4-percent-plus gain for oil prices, coming on the heels of a weekly rise of over 4 percent, as traders on Monday returned to their familiar assumption that a widening conflict in the Middle East will disrupt supplies.

The re-focus was caused by Washington stating over the weekend that it will send a guided missile submarine and a carrier strike group to the region, as Israel awaits Iran's retaliation for the assassinations of a Hamas leader and Hezbollah military commander.

Bob Yawger, director of energy futures at Mizuho, speculated that if Iran attacks, the U.S. could place embargos on Iranian crude exports, potentially affecting 1.5 million barrels per day (bpd) of supply.

For his part, John Kilduff, founding partner at Again Capital, theorized that Israel could target Iranian oil and hamper crude output from other significant regional producers, including Iraq.

As such, Brent settled up $2.64 at $82.30 per barrel, a rise of 3.3 percent, while West Texas Intermediate settled up $3.22 at $80.06 per barrel, a 4.2 percent rise.

Phil Flynn, senior market analyst at the Price Futures Group, pointed out that WTI was trading higher even though the Organization of the Petroleum Exporting Countries (OPEC) lowered its global demand growth forecast by 135,000 bpd, due to softening consumption in China.

He said, "The oil markets reacted strongly to the increased geopolitical risk even as OPEC has shown some concern about its demand growth," but he added that the market is still on track for a deficit as inventories fall.

Oil on Monday was also said to have been supported by good economic news from the U.S., specifically, Bank of America stating it no longer believes a recession will happen since the White House and the Federal Reserve had managed a "soft landing" on inflation.

BoA CEO Brian Moynihan told media, "The consumer has slowed down: they have money in their accounts, but they're depleting a little bit…they're employed, they're earning money, but if you look at — they've really slowed down, so the Fed is in a position they have to be careful that they don't slow down too much."