Oil price jumps on concerns over escalation in Israel-Hamas war

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The oil price rose to its highest level since the outbreak of the Israel-Hamas conflict at just under $90 a barrel, as concerns about a potential ground assault on Gaza added fresh tension to commodities markets.

Brent crude, the global benchmark, added as much as 4 per cent to $89.94 a barrel on Friday, hitting its highest point since Hamas attacked Israel at the weekend.

Prices rose after Israel’s military warned more than 1mn people to leave Gaza City and its outskirts and relocate to the south of the enclave, with what the UN said was a 24-hour deadline.

“We’re headed to $100 [a barrel] no matter what this quarter,” said Joe DeLaura, global energy strategist at Rabobank.

“Prices could easily get a lot worse [higher] before we find some stabilisation,” said Ole Hansen, head of commodity strategy at Saxo Bank. He added that “no one in the right frame of mind would hold a short position [in oil] when Israel has just ordered one million people to leave [northern] Gaza. That threatens a massive escalation.”

Oil price moves had been muted during the week, with traders believing the possibility of a squeeze on oil supplies unlikely. The price remains well below the $97 a barrel reached in late September, when Saudi Arabia and Russia extended production cuts through to the end of 2023.

Even after Israel’s demand for people to leave northern Gaza, “markets still aren’t really aggressively pricing in an escalation beyond Israel [and] Gaza, otherwise we would be higher in oil and way, way higher in gas”, said David Hewitt, a consultant at Hewitt Energy Perspectives. European gas prices hit their highest point since February on Friday.

But the International Energy Agency warned on Thursday that “markets will remain on tenterhooks as the crisis unfolds”, amid worries that the conflict could spread further in the Middle East, a region accounting for more than one-third of the world’s seaborne oil trade.

Analysts at JPMorgan said there had been “no immediate impact” on current global oil production and that the conflict in Israel was unlikely to “trigger a substantial surge” in the oil price from its current level before the end of the year.

A broadening of the conflict would change the equation, however. The bank warned that supply could be hit if the US were to strictly enforce restrictions on Iranian oil exports or if the conflict between Israel and Hamas led to disruption in the Strait of Hormuz, a major oil chokepoint.

Iran’s foreign minister Hossein Amirabdollahian on Thursday warned that large-scale Israeli attacks in Gaza might encourage other militant groups — such as Lebanon’s Iranian-backed Hizbollah — to enter the conflict. 

“Cutting off water, electricity, food and medicine for Gaza residents is an organised war crime . . . which could cause reactions by others in ‘the axis of resistance’,” he said at a press conference in Beirut.

Rabobank’s DeLaura said oil prices were also being driven higher by US sanctions imposed on Thursday on two companies said to have violated the Russian oil price cap. “These sanctions on their own are immaterial, but they’re a sign of larger things to come,” DeLaura said. 

Global oil demand is set to grow at a slower pace next year, with difficult economic conditions and greater energy efficiency hitting consumption, the IEA reported on Thursday. It expects demand to increase by 880,000 barrels a day in 2024, compared with a 2.3mn b/d increase in 2023.