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Saturday, 20. July 2024

Oil surges on Israeli strike reports


Oil prices surged on Friday following reports of an Israeli attack on Iran, causing market turbulence and raising concerns about potential disruptions to oil supply in the Middle East.

The benchmark contracts saw a spike of over $3 before slightly retracing. As of 0615 GMT, Brent futures had risen by $1.40, or 1.61%, reaching $88.51 a barrel. Meanwhile, the most active U.S. West Texas Intermediate contract rose by $1.38, or 1.68%, to $83.48 per barrel.

Israel launched an attack on Iranian soil on Friday, according to sources reported by Reuters. This latest exchange adds to the ongoing tensions between the two nations and raises concerns about escalating conflict in the region.

Iranian media reported explosions, attributing them to air defense systems. State media also mentioned the downing of three drones over the central city of Isfahan.

Kelvin Wong, an analyst at OANDA in Singapore, noted that “rising geopolitical risk premiums translate to a risk-off environment at this juncture with a heightened risk of oil supply disruption at least in the short-term”.

“Further escalation [suggests] that the tit-for-tat retaliation between both sides will drag for longer,” remarked Jun Rong Yeap, a market strategist at IG in Singapore.

An Iranian counterattack poses “significant risks to the widening of the conflict to a regional one and could potentially put some oil supplies at risk. Prices of oil could stay supported in the meantime as tensions will continue to heat up,” saidYeap.

The escalating conflict between Iran and Israel has intensified, with reports indicating that last weekend, Iran launched hundreds of drones and missiles in a retaliatory strike following a suspected Israeli strike on its embassy compound in Syria. Fortunately, most of the drones and missiles were intercepted before reaching Israeli territory, resulting in minimal damage and casualties.

Investors have been closely watching Israel’s response to the April 13 Iranian drone attacks. The geopolitical risk premium in oil prices had been easing this week amid the belief that any Israeli retaliation to Iran’s attack would be tempered by international pressure.

In global crude oil supply news, Venezuela suffered a setback as a crucial U.S. license permitting the OPEC member to export oil worldwide was revoked. Additionally, the U.S. imposed sanctions on Iran, another OPEC member, in response to its drone strike on Israel, though these sanctions do not cover its oil industry.

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