Oil Rises on Middle East Conflict Fears, But Ample Supply Limits Gains

Oil prices climbed on Thursday as escalating tensions in the Middle East, particularly the conflict between Israel and Hezbollah, raised concerns about potential disruptions to crude flows from the region. However, gains were capped by the expectation of ample global supply.

By 0840 GMT, Brent crude futures rose $1.02, or 1.38%, to $74.92 a barrel, while U.S. West Texas Intermediate (WTI) crude increased $1.10, or 1.57%, to $71.20.

Middle East Tensions Keep Markets on Edge

The geopolitical situation remains tense following Israeli airstrikes on Beirut, which killed at least six people. This came after Israel experienced its deadliest day of clashes on its Lebanese front in a year, due to its confrontation with the Iran-backed Hezbollah group. Israeli Prime Minister Benjamin Netanyahu warned that Iran would face consequences for its missile attacks, while Tehran vowed „vast destruction“ in response to any retaliation, sparking fears of a broader conflict.

Market analysts, such as Tony Sycamore of IG, suggest that any major response from Israel could follow the conclusion of the Rosh Hashanah holiday, keeping market participants on edge.

„Expansion of the war will need to be proven before market participants shake off skepticism,“ noted John Evans, an analyst at PVM.

Ample Supply Tempering Oil Price Rally

Despite the Middle East tensions, U.S. crude inventories rose by 3.9 million barrels last week, far exceeding market expectations of a 1.3 million-barrel drop. This increase in supply provides further evidence that the market remains well-supplied, helping to offset fears of potential disruptions from the Middle East.

ANZ analysts stated that swelling U.S. inventories reinforced the idea that the market could withstand any disruptions.

Additionally, investors are reassured by the Organization of the Petroleum Exporting Countries‘ (OPEC) spare capacity, which could compensate for any significant supply disruptions from the region.

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