Oil prices rise on Israel's promise to retaliate after Iran's attack

Oil prices rose as much as 3% on Wednesday before paring gains on concerns about supply disruptions caused by the Middle East conflict.

Prices fell from their highs by midday of the trading session after Russia signaled that the OPEC+ oil alliance would implement its plans to expand the market in December. U.S. government data also showed an unexpected increase in inventories last week.

West Texas Intermediate (CL=F) gained less than 1% to close at $70.10 a barrel. Brent (BZ=F), the international benchmark price, also rose, settling at $73.90 a barrel.

Wednesday's moves followed a brief 5% rise during the previous session after Iran fired about 200 ballistic missiles in response to Israeli ground attacks in southern Lebanon against Iranian-backed militants.

“Crude oil trading has risen significantly as large short-selling by funds continues due to rising geopolitical issues, with Israel now vowing to strike back against Iran,” Dennis Kissler, senior vice president of trading at BOK Financial, said in a note to clients on Wednesday.

According to an Axios report, Israeli officials said retaliation could include attacks on Iranian oil production facilities. Iran produces about 3 million barrels of oil per day.

Investors are also concerned about disruption risks arising from “potential further declines in Red Sea oil flows,” analysts at Goldman Sachs noted on Wednesday. The waterway between Africa and the Arabian Peninsula has been a hotspot for rebel attacks this year in response to the war between Israel and Hamas.

Crude oil futures pared intraday gains after the latest government data released on Wednesday showed U.S. inventories unexpectedly rose last week.

Prices also reacted to comments from Russian Deputy Prime Minister Alexander Novak, who signaled that the OPEC+ oil alliance would press ahead with its plan to begin increasing production from December.

Last week, the futures market plunged after news that Saudi Arabia, the leader of the oil alliance, was determined to begin unwinding voluntary production cuts later this year, even if that would lead to lower crude prices.

The Organization of the Petroleum Exporting Countries and its production allies have been cutting production since 2022. Despite the group's commitments, some members have produced above their quotas this year.

“The market had seen a sell-off over the last few months as it became clear, very clear that OPEC+ members were cheating on their quotas,” Ed Hirs, a senior fellow at the University of Houston, told Yahoo Finance on Wednesday.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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