Supply concerns jolts crude price amid Israel, Hamas crisis conflict

Surprise offensive by the Palestinian militant group against Israel at the weekend and the resulting retaliation has raised concerns about oil supplies from the Middle East, pushing the price of crude by $4 per barrel to trade near the $89 per barrel mark.

If the conflict between Israel and Palestine escalates further, spreading across the wider Middle East and drawing attention to Iran, a major oil producer and Hamas supporter, it could seriously dampen global risk appetite.

“Key for markets is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia,” Brian Martin and Daniel Hynes of ANZ Group said.

“Initially at least, it seems markets will assume the situation will remain limited in scope, duration, and oil-price consequences. But higher volatility can be expected.”

Some analysts posited that the surge in crude oil price is likely to be temporary as neither Israel nor Palestine is a major oil supplier and, so far, the conflict has not directly threatened any major oil production or supply facilities.

However, they reiterated that if the war is prolonged for a longer period then it might affect crude oil prices in the short term because the conflict is geographically close to major oil-producing and exporting nations.

Over 1,000 people have been killed in Israel and Gaza following a large-scale assault by the militant group Hamas that started early Saturday.

The initial assault included an attack on civilians at a crowded music festival where authorities removed about 260 bodies and Hamas claimed to have taken more than 130 Israeli captives.

According to energy experts, if the war continues for a longer period, crude oil prices may see some gains but it is unlikely that they will go beyond the $100 per barrel mark.

Deven Choksey, Managing Director of KR Choksey Shares and Securities said, “OPEC nations are mindful of not increasing the oil price beyond 10-12 per cent as they have an understanding in practice with the US to ensure that oil prices are not increased beyond certain levels. Thus, under the knee-jerk reaction to this attack, prices may go up by 10-12 per cent in the near term.”

“The issue is that if the war persists for long, which is say, even a fortnight onwards, then the oil dynamics will change. Brent had crossed the $90 mark but then retreated. Now we can use the 90 number to be the threshold beyond which there is trouble for the world economy.

Also reacting to the impact of the war on global energy supply, a senior operation staff at South Atlantic Petroleum (SAPETRO), Jaiye Adebiyi, noted that in the immediate aftermath of the attack, there is the possibility of seeing a sharp 10-12 per cent spike in oil prices.

He however stated that it’s highly unlikely that these heightened prices will persist in the long run, indicating a short-term fluctuation.

Adebiyi pointed out that OPEC nations are careful not to let oil prices rise beyond 10-12 per cent due to their understanding of the USA. This mutual agreement, he argued, helps in ensuring that oil prices don’t go haywire, maintaining stability in the market.