Oil prices jump more than $4 after Israel strikes Iran
(Reuters) -Oil prices jumped more than $4 a barrel on Friday after Israel said it struck Iran, raising concerns of escalating tensions in the Middle East that may affect oil supplies.
Brent crude futures were up $4.02, or 5.8%, at $73.38 a barrel. U.S. West Texas Intermediate crude was up $4.35, or 6.39%, at $72.39 a barrel at 0029 GMT.
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CNBC
18 minutes ago
- CNBC
Where oil prices may go next, based on a history of Middle East conflicts
The spike in oil prices may soon stall and reverse course if the Israel-Iran conflict does not widen, according to historical data examined by TD Securities. Daniel Ghali, a senior commodity strategist at the firm, said in a note to clients that the initial moves in oil markets already put this week's developments on par with the average comparable event since the 1980s. "Historically, geopolitical risks typically faded within one month, and completely evaporated within six months, in line with subsequent macroeconomic headwinds and deployment of spare capacity. Expanded wars (incl. involving USA) have a more significant impact," Ghali said. In 14 similar events since 1948 identified by TD, it took an average of 2.36 months for oil prices to peak, with an average increase of 17%. However, that includes a 135% spike around the Yom Kippur War in 1973. Focusing only on events after 1980 shows a smaller average advance for oil prices. By comparison, West Texas Intermediate crude oil futures rose more than 8% on Friday. Prices have risen by more than 20% in all of June thus far, and some of the run-up before the conflict could be due in part to traders anticipating rising tensions. What happens over the weekend could play a big role in whether the spike in oil continues. Oil prices moved higher intraday Friday after Iran launched retaliatory missiles toward Israel. In particular, traders will be looking to see if oil infrastructure such as production platforms, pipelines or refineries are damaged in any back-and-forth exchanges between the two nations. Most Wall Street commentary from major investment banks pointed toward a narrow conflict and a short, limited move in oil prices. One outlier was Piper Sandler's global energy strategist Jan Stuart, who said in a note to clients, "we would not fade any oil price rally; this is war." Another variable to consider is the Organization of Petroleum Exporting Countries, or OPEC. A change in production from this group could offset or exacercebate the price impact of an Israel-Iran conflict. "Iranian crude grades may be replaced by Middle Eastern grades, but given regional politics, OPEC nations may hesitate to capitalize on weaker Iranian exports by ramping up the speed at which voluntary production cuts are unwound," Ghali said. — CNBC's Michael Bloom contributed reporting.
Yahoo
21 minutes ago
- Yahoo
Analysis-OPEC+ would struggle to cover major Iranian oil supply disruption
By Ahmad Ghaddar and Seher Dareen LONDON (Reuters) -Oil market participants have switched to dreading a shortage in fuel from focusing on impending oversupply in just two days this week. After Israel attacked Iran and Tehran pledged to retaliate, oil prices jumped as much as 13% to their highest since January as investors price in an increased probability of a major disruption in Middle East oil supplies. Part of the reason for the rapid spike is that spare capacity among OPEC and allies to pump more oil to offset any disruption is roughly equivalent to Iran's output, according to analysts and OPEC watchers. Saudi Arabia and the United Arab Emirates are the only OPEC+ members capable of quickly boosting output and could pump around 3.5 million barrels per day (bpd) more, analysts and industry sources said. Iran's production stands at around 3.3 million bpd, and it exports over 2 million bpd of oil and fuel. There has been no impact on output so far from Israel's attacks on Iran's oil and gas infrastructure, nor on exports from the region. But fears that Israel may destroy Iranian oil facilities to deprive it of its main source of revenue have driven oil prices higher. The Brent benchmark last traded up nearly 7% at over $74 on Friday. An attack with a significant impact on Iranian output that required other producers to pump more to plug the gap would leave very little spare capacity to deal with other disruptions - which can happen due to war, natural disasters or accidents. And that with a caveat that Iran does not attack its neighbours in retaliation for Israeli strikes. Iran has in the past threatened to disrupt shipping through the Strait of Hormuz if it is attacked. The Strait is the exit route from the Middle East Gulf for around 20% of the world's oil supply, including Saudi, UAE, Kuwaiti, Iraqi and Iranian exports. Iran has also previously stated that it would attack other oil suppliers that filled any gap in supplies left due to sanctions or attacks on Iran. "If Iran responds by disrupting oil flows through the Strait of Hormuz, targeting regional oil infrastructure, or striking U.S. military assets, the market reaction could be much more severe, potentially pushing prices up by $20 per barrel or more," said Jorge Leon, head of geopolitical analysis at Rystad and a former OPEC official. CHANGE IN CALCULUS The abrupt change in calculus for oil investors this week comes after months in which output increases from OPEC and its allies, a group known as OPEC+, have led to investor concern about future oversupply and a potential price crash. Saudi Arabia, the de facto leader of OPEC, has been the driving force behind an acceleration in the group's output increases, in part to punish allies that have pumped more oil than they were supposed to under OPEC+ agreements. The increases have already strained the capacity of some members to produce more, causing them to fall short of their new targets. Even after recent increases, the group still has output curbs in place of about 4.5 million bpd, which were agreed over the past five years to balance supply and demand. But some of that spare oil capacity - the difference between actual output and notional production potential that can be brought online quickly and sustained - exists only on paper. After years of production cuts and reduced oilfield investment following the COVID-19 pandemic, the oilfields and facilities may no longer be able to restart quickly, said analysts and OPEC watchers. Western sanctions on Iran, Russia and Venezuela have also led to decreases in oil investment in those countries. "Following the July hike, most OPEC members, excluding Saudi Arabia, appear to be producing at or near maximum capacity," J.P. Morgan said in a note. Outside of Saudi Arabia and the UAE, spare capacity was negligible, said a senior industry source who works with OPEC+ producers. "Saudi are the only ones with real barrels, the rest is paper," the source said. He asked not to be named due to the sensitivity of the matter. PAPER BARRELS Saudi oil output is set to rise to above 9.5 million bpd in July, leaving the kingdom with the ability to raise output by another 2.5 million bpd if it decides to. That capacity has been tested, however, only once in the last decade and only for one month in 2020 when Saudi Arabia and Russia fell out and pumped at will in a fight for market share. Saudi Arabia has also stopped investing in expanding its spare capacity beyond 12 million bpd as the kingdom diverted resources to other projects. Russia, the second largest producer inside OPEC+, claims it can pump above 12 million bpd. JP Morgan estimates, however, that Moscow can only ramp up output by 250,000 bpd to 9.5 million bpd over the next three months and will struggle to raise output further due to sanctions. The UAE says its maximum oil production capacity is 4.85 million bpd, and told OPEC that its production of crude alone in April stood at just over 2.9 million bpd, a figure largely endorsed by OPEC's secondary sources. The International Energy Agency, however, estimated the country's crude production at about 3.3 million bpd in April, and says the UAE has the capacity to raise that by a further 1 million bpd. BNP Paribas sees UAE output even higher at 3.5-4.0 million bpd. "I think spare capacity is significantly lower than what's often quoted," said BNP analyst Aldo Spanjer. The difference in ability to raise production has already created tensions inside OPEC+. Saudi Arabia favours unwinding cuts of about 800,000 bpd by the end of October, sources have told Reuters. At their last meeting, Russia along with Oman and Algeria expressed support for pausing a hike for July. Sign in to access your portfolio
Yahoo
34 minutes ago
- Yahoo
Israel's attacks on Iran may keep Fed rate cuts on hold, just as inflation was looking better
Surging oil prices in the wake of Israel's large-scale air strikes on Iran could reignite inflation, which has shown signs of cooling despite President Donald Trump's tariffs. Israel has signaled its attacks will be sustained, raising the risk oil prices will remain high and drag inflation up, too, preventing the Federal Reserve from lowering interest rates. Israel's large-scale attacks on Iran sent oil prices surging, and the prospect of a prolonged conflict that keeps crude higher could dash hopes for rate cuts from the Federal Reserve. West Texas Intermediate and Brent crude both jumped about 6% Friday to $72.11 and $73.46 per barrel, respectively. That comes after months of subdued prices had helped keep inflation in check, despite fears President Donald Trump's tariffs would add upward pressure. Lower-than-expected readings earlier this week on consumer and producer prices had raised hopes the Federal Reserve could have more leeway to lower interest rates later this year. But those hopes suddenly dimmed after Israel launched air strikes across Iran early Friday, targeting its nuclear weapons facilities and top military leadership. The 10-year Treasury yield jumped 6.9 basis points on Friday to $4.426, reversing a dip in the immediate aftermath of the attacks, as rate-cut optimism cooled. Prime Minister Benjamin Netanyahu has signaled Israel's offensive will be sustained for as long as necessary to eliminate Iran's nuclear threat. Iran has already retaliated by launching drone attacks and canceling another round of talks with U.S. officials over easing sanctions on Tehran in exchange for concessions on Iran's nuclear program. That sets up the region for a potentially extended conflict, maintaining pressure on oil prices and inflation. While Israel hasn't yet targeted Iran's oil production and export facilities, such an attack or Iran blocking the Strait of Hormuz, a key choke point in the global oil trade, could send crude soaring by $20 per barrel or more, analysts estimated. According to Capital Economics, a surge to $80 to $100 a barrel could add an up to 1.0 percentage point rise in inflation in developed markets. 'We suspect such a spike in prices would result in more OPEC+ production coming online though, thereby limiting the length of the inflation shock,' Capital Economics said. 'But any rise in energy inflation would be another reason for central banks to proceed cautiously with cutting interest rates, and for the Fed to remain on the sidelines for now.' With the risk of a recession easing as Trump has backtracked on his most aggressive tariff rates, any Fed rate cuts would have to come from continued cooling in inflation. After the latest inflation data, Trump continued to harangue Fed Chairman Jerome Powell about lowering rates, ahead of the Federal Open Market Committee's meeting next week. Policymakers are expected to keep rates on hold again amid concerns tariffs may have a bigger impact on prices over the summer, when companies run out of pre-tariff inventory and can no longer eat the cost of higher duties. This story was originally featured on
