Oil leaps as fear of broader Middle East conflict builds

London — Oil prices rose by more than $2 a barrel on Friday as investors priced in fears of an escalation of conflict in the Middle East, which could disrupt oil supplies, after reports that the US military had struck Iranian targets in Syria.

Brent crude futures for December rose $2.03, or 2.3%, to $89.96 a barrel by 10.11am GMT. The US West Texas Intermediate contract for December climbed $1.89, or 2.3%, to $85.1 a barrel.

Two US fighter jets struck weapons and ammunition facilities in Syria on Friday in retaliation for attacks on US forces by Iranian-backed militia.

Iranian foreign minister Hossein Amirabdollahian said at the UN on Thursday that if Israel’s offensive against Hamas did not stop, the US would “not be spared from this fire”.

Separately, projectiles hit two Egyptian Red Sea towns on Friday injuring several people, sources and officials said, showing the risk of regional spillover from the conflict.

Meanwhile, Israeli forces carried out their biggest Gaza ground attack in their 20-day war with Hamas overnight, after Prime Minister Benjamin Netanyahu said Israeli troops were still preparing for a full ground invasion.

So far the developments have not directly affected oil supplies, but raise fears that the conflict in the Gaza Strip as may spread and disrupt exports from major crude producer and Hamas-backer Iran.

Red lines

Intensifying conflict could also impact shipments from Saudi Arabia, the world’s largest oil exporter, and other large producers in the Gulf.

‘[It] remains incredibly difficult even for the most knowledgeable regional watchers to make high conviction calls about the trajectory of the current crisis, as the red lines that could bring more players onto the battlefield remain largely indiscernible,” RBC Capital analyst Helima Croft said.

Goldman Sachs analysts said they retained their first-quarter 2024 Brent crude price forecast at $95 a barrel but added that lower Iranian exports could cause baseline prices to rise by 5%.

Prices could jump 20% in the less likely scenario of an interruption of trade through the Strait of Hormuz where 17% of global oil production transits, the bank said.

Meanwhile, prospects for oil demand remain circumspect.

On Thursday, data showed the US economy grew at its fastest pace in nearly two years in the third quarter, bucking the trend of macroeconomic gloom that has plagued much of Europe.

“It remains to be seen whether energy markets as a whole can keep on ignoring these millstones around the neck of economic growth because they will continue to haunt the consciousness of the oil suite for some time,” said John Evans of oil broker PVM.

Reuters