TLDR:
- Oil prices rose as markets await Israel’s response to Iran’s missile attack
- Biden discouraged striking Iranian oil fields
- Middle East tensions remain high, with Israel conducting operations in Gaza and Lebanon
- Options markets show a bullish bias for oil
- Saudi Arabia raised oil prices for Asian buyers but cut prices for US and European markets
Oil markets experienced volatility on Monday, October 7, 2024, as traders closely monitored the ongoing geopolitical tensions in the Middle East.
Brent crude, the global benchmark, rose above $78 per barrel, while West Texas Intermediate (WTI) surpassed $75. This increase followed a week that saw the largest jump in oil prices since January 2023.
The primary catalyst for the market’s uncertainty is the recent missile attack by Iran on Israel, which has raised concerns about a potential escalation of conflict in the region
. Traders are now anxiously awaiting Israel’s response to the attack, with many speculating about the possibility of retaliatory measures.
U.S. President Joe Biden addressed the situation on Friday, stating that he was unsure when an Israeli response might come.
However, he notably discouraged the idea of striking Iranian oil fields, suggesting that Israel should consider “other alternatives.” This statement has somewhat tempered fears of immediate disruptions to oil supply from Iran, which has recently returned to almost full production capacity.
Despite the focus on geopolitical tensions, underlying concerns about oil demand persist, particularly regarding China, the world’s largest oil importer. Questions about Chinese economic growth continue to weigh on the market, even as oil prices react to short-term geopolitical events.
In response to the current market dynamics, Saudi Arabia, the world’s largest oil exporter, has adjusted its pricing strategy.
The kingdom raised its main oil prices for buyers in Asia by a greater-than-expected amount, increasing the premium for its Arab Light crude grade to $2.20 per barrel above the regional benchmark.
This move reflects Saudi Arabia’s assessment of the Asian market’s strength and willingness to pay higher prices.
Conversely, Saudi Arabia reduced prices for all grades exported to the United States and European markets. This decision likely reflects the differing demand dynamics and competitive landscape in these regions.
The options market for oil is showing a clear bias toward bullish call options, indicating that many traders expect prices to rise further. A measure of implied volatility for Brent crude is near its highest level in almost a year, underscoring the uncertainty in the market.
Financial institutions have offered varying perspectives on the potential impact of the current situation. Goldman Sachs Group Inc. has predicted that Brent could surge to the $90s per barrel if Iran’s oil supply is disrupted. However, JPMorgan Chase & Co. suggested that attacking Tehran’s energy facilities might not be the preferred course of action for Israel.
As tensions remain high, Israel has sent troops back into northern Gaza and continued aerial attacks and limited ground operations in Lebanon. These actions have kept the region on edge and contributed to the oil market’s nervousness.
China, a key player in global oil demand, is set to announce new economic policies. The country’s top economic planner will hold a press briefing on Tuesday to discuss a package of measures aimed at boosting economic growth.
Analysts are anticipating potential expansions in public spending as part of China’s stimulus efforts, which could have implications for oil demand.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
