Oil Markets Rally: Weekly Gains Highlight Regional Instability

Oil prices increased on Friday, achieving their largest weekly gains in over a year due to rising concerns about a potential widespread conflict in the Middle East. However, gains were somewhat tempered after U.S. President Joe Biden advised Israel against targeting Iranian oil facilities.

Brent crude futures rose by 43 cents, or 0.6%, to settle at $78.05 per barrel, while U.S. West Texas Intermediate (WTI) crude futures climbed by 67 cents, or 0.9%, closing at $74.38 per barrel.

The situation escalated when Israel vowed to retaliate against Iran following a missile attack on Tuesday, just days after Israel killed a leader of the Iran-supported Hezbollah group. This prompted oil analysts to warn clients about the potential consequences of a wider conflict in the region.

During trading, oil prices surged nearly 2% but then retracted sharply after Biden stated that, if he were in Israel’s position, he would explore alternatives to attacking Iranian oil fields.

On Thursday, oil prices had jumped over 5% after Biden confirmed U.S. discussions with Israel regarding possible support for strikes on Iranian energy infrastructure.

Weekly, Brent crude saw an increase of over 8%, marking its largest weekly rise since January 2023, while WTI gained 9.1%, the most significant increase since March 2023.

JPMorgan’s commodities analysts noted that although an attack on Iranian energy facilities isn’t Israel’s preferred strategy, global oil inventories are low, suggesting that prices may remain elevated until the conflict is resolved.

According to data from ship-tracking service Kpler, current inventories are below last year’s levels—when Brent was priced at $92—and at 4.4 billion barrels, they are at their lowest recorded level.

Brokerage StoneX predicted that oil prices could spike by $3 to $5 per barrel if Iranian oil infrastructure is targeted.

On Friday, Iran’s Supreme Leader, Ayatollah Ali Khamenei, made his first public appearance since the missile attack, urging increased resistance against Israel.

Revolutionary Guards deputy commander Ali Fadavi stated that Iran would retaliate by targeting Israeli energy and gas installations if attacked.

Iran, a member of OPEC+, produces around 3.2 million barrels per day, accounting for 3% of global output. Analysts from Rystad noted that the group’s spare production capacity could allow other members to increase output if Iranian supplies are disrupted, which would help to moderate any potential increases in oil prices.

Additionally, concerns over supply have eased in Libya, where the eastern-based government and the Tripoli-based National Oil Corporation announced on Thursday that all oilfields and export terminals would reopen following a resolution to a dispute over central bank leadership.

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