Oil continues to rise as Israel promises retaliation after attack on Iran

(Bloomberg) — Oil prices rose for a second day after Iran fired about 200 ballistic missiles into Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation and raising risks to crude shipments from the region.

Most read by Bloomberg

Global benchmark Brent crude rose above $74 a barrel after briefly rising more than 5% on Tuesday following the Iranian attack, which was preceded by a US warning. West Texas Intermediate rose to nearly $71, but also remained below the previous session's high.

The rise in crude oil prices reflects investors pricing in a renewed risk premium for the world's most important commodity, as the Middle East accounts for about a third of global supplies. Safe-haven assets, including bonds, gold and the US dollar, also rose amid the recent escalation in conflict.

A measure of implied volatility for Brent has risen, and options markets are starting to price in higher geopolitical risk with a smaller premium of puts – which benefit from lower prices – over the opposing calls.

Although Israel and Iran have been facing off since the war in Gaza against Tehran-backed Hamas broke out nearly a year ago, previous peaks have been short-lived as there have been no actual disruptions to oil production. According to OPEC, Iran produced about 3.4 million barrels per day in August.

While many participants have “mitigated” the risk of supply disruptions, energy infrastructure could become a target for both sides, RBC Capital Markets LLC said in a note. Iran's export facilities on Kharg Island could be a target, and Tehran and its proxies could attack energy operations “to internationalize costs if the current crisis develops into an all-out war,” it said.

Tensions in the Middle East have increased significantly following the assassination of Hezbollah chief Hassan Nasrallah last week. Israel bombed central Beirut on Monday and its troops began what it called “targeted ground attacks” in Lebanon. Hezbollah is supported by Tehran.

According to a post on paying for it.”

Attacks erupted between Iran and Israel earlier this year, with Tehran firing a barrage of missiles and drones in April that were marked in advance and caused little damage. A few days later, a limited Israeli retaliatory strike against Iran followed. This week, oil prices ended more than 3% lower.

The story continues

From here, any “sustained rally” in oil will depend on whether Israel responds with a direct attack on Iran's military, infrastructure or oil industry, analysts at ANZ Group Holdings said in a note.

OPEC+, meanwhile, is scheduled to hold an online meeting of a technical panel – the Joint Ministerial Monitoring Committee – later on Wednesday to review global oil markets. The group is preparing to restart part of its idle production from December after initially postponing this plan.

In the US, the American Petroleum Institute reported that national crude oil inventories fell by 1.5 million barrels last week. That would be the third consecutive weekly decline when official figures are confirmed later on Wednesday.

To get Bloomberg's Energy Daily newsletter in your inbox, click here.

Most read by Bloomberg Businessweek

©2024 Bloomberg LP