Iran's Vow To Strike Israel Causes Oil To Jump Over 4%

Analysts predict war will boost prices even before supply disruptions start: File Image/Pixabay.

Iran’s vow to retaliate for the killing of a Hamas leader in the Islamic republic reignited geopolitical fears of supply disruptions and sent crude prices spiralling upward on Wednesday, by over 4 percent in the case of one key benchmark.

Crude was also supported by government data showing a fifth straight week of U.S. stockpile declines: they dropped by 3.4 million barrels last week, more than triple the 1.1 million barrel decline analysts had expected.

Brent settled up $2.09, or 2.6 percent, at $80.72 per barrel, while WTI settled up $3.18, or 4.2 percent, to $77.91 per barrel.

However, the bearish sentiment driven by perceptions of weak demand in many parts of the world took its toll in monthly results: for the month, Brent was down nearly 7 percent, and West Texas Intermediate declined nearly 4 percent in July.

And even thought he killing of Hamas leader Ismail Haniyeh came a day after Israel claimed it killed Hezbollah's most senior commander in an airstrike on Beirut, the geopolitical tensions now at a fever pitch “merely provide temporary reprieve for oil benchmarks,” said Gaurav Sharma, an independent oil analyst in London, adding that “Unless oil and gas infrastructure is hit, the latest spike is unlikely to last."

For the record, Iran’s leader Ayatollah Ali Khamenei has ordered a direct strike on Israel, according to the New York Times.

Clay Seigle, director of the global oil service at Rapidan Energy Group, told CNBC that oil traders have been “mispricing” the geopolitical risks, “But now we’re moving into a phase of deterioration into the Middle East that we believe is going to capture oil traders’ attention and get them to return some material risk premium into the price of Brent: at least $5 [per barrel] to start, even before we see a potential physical supply disruption.”

Seigle went on to explain that “The events that we’ve seen over the past 1-3 days have marked a fairly sharp deterioration that has the potential to break us out of this phase of contained escalation between the sides that we’ve seen really since Oct. 7 and take us into new territory for oil and gas markets.”

Next up for traders is Thursday’s meeting of the Organization of the Petroleum Exporting Countries’ (OPEC) Joint Ministerial Monitoring Committee, in which compliance with individual members’ production quotas will be assessed; although the Committee hasn’t the power to alter OPEC’s output strategy, if it decides market circumstances warrant the step it can call for a full-fledged ministerial meeting to do so.

Meanwhile, all but overlooked as analysts contemplated all-out war in the Middle East was news from Russia that it will extend its ban on gasoline exports from August to October, in order to offset domestic demand growth next spring and summer.

China and India are likely to feel the export cuts most keenly since they buy more than 80 percent Russian seaborne crude sales.