Global oil prices surged to their highest weekly gain in over a year, driven by escalating tensions between Israel and Iran. Despite paring some gains on Friday, West Texas Intermediate crude settled at $74.38 per barrel, up nearly 1%, while Brent crude rose to $78.09 per barrel. The week saw a remarkable 9% increase in US crude futures, the largest weekly jump since March 2023.
The rally was fueled by concerns over potential disruptions to oil supplies, particularly in the Strait of Hormuz, a critical chokepoint for oil shipments. The situation was exacerbated by Iran’s recent missile attack on Israel, prompting fears of retaliatory action against Iranian oil facilities.
However, President Biden’s comments on Friday seemed to temper the market’s enthusiasm, as he suggested that targeting Iran’s oil infrastructure might not be the most effective response. Analysts at JPMorgan believe the White House is unlikely to support such a move, given the potential impact on oil prices ahead of the US elections.
Despite the uncertainty, some experts predict that oil prices could continue to rise if tensions in the region escalate. “A serious blockage or delay in the Strait of Hormuz could push Brent prices above $80,” warned Bill Baruch, founder of Blue Line Futures.
The market’s reaction was also driven by short covering, as investors scrambled to adjust their positions in response to the rapidly changing geopolitical landscape. However, spare capacity from oil alliance OPEC+ could help keep prices in check, particularly if Saudi Arabia follows through on its plans to unwind production cuts later this year.
As the situation continues to unfold, investors will be closely watching for any signs of further escalation or de-escalation in the region, and its potential impact on global oil markets.
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