On Monday, oil prices went up by 4% due to concerns that problems in Israel and Gaza could disrupt oil production in the Middle East. West Texas Intermediate (WTI), which is the benchmark for oil prices in the United States, went up to more than $86 per barrel. The price of Brent crude also spiked above 88 in early Asian trading.
Middle East’s Significance in Global Oil Supply
The Middle East supplies about a third of the world’s oil. But Israel and the Palestinian regions don’t produce much oil. The recent attacks by the Hamas group escalated tensions in the region.
Western nations condemned these attacks. But Hamas claimed to have received assistance from Iran. However, Iran denied any involvement during a UN Security Council meeting in New York on Sunday. Nevertheless, Iranian President Ebrahim Raisi openly expressed support for the attacks, as per the report.
Nifty 50 Tomorrow: How Will Brent React
Risk of High Premiums on Oil Prices
- The risk premium on oil is rising due to the potential for a larger conflict.
- Major oil-producing nations like Iran and Saudi Arabia could be affected.
- If the conflict reaches Iran, accused of supporting Hamas, up to 3% of the global oil supply may be in danger.
- Disruptions in the vital oil trade route, the Strait of Hormuz, could risk about a fifth of the world’s oil supply.
The Strait of Hormuz is crucial for Gulf region nations heavily dependent on oil and gas. Uncertainty about the future might lead investors to choose US Treasury bonds and the US dollar. These investments are seen as safe options during times of crisis.
- Following Russia’s invasion of Ukraine in February 2022, oil prices soared.
- They peaked at over $120 per barrel in June that year.
- Prices experienced a temporary dip, briefly falling to slightly above $70 per barrel in May of the current year.
- However, oil prices have been consistently rising as oil producers reduced output to stabilize the market.
Saudi Arabia, a big oil producer, said it would cut its oil production by one million barrels per day in July. Other countries in OPEC+, a group of oil-producing nations, also agreed to keep reducing their oil production, which has a big impact on oil prices.
Source: Internet
