**Oil Prices Surge Amid Fears of Middle East Conflict**
Oil prices have seen a significant jump of over $5 a barrel this week, driven by concerns of a potential conflict between Israel and Iran. The rally, which puts crude futures on track for an 8% gain this week, has surprised many market observers who expected a more dramatic price increase given the high stakes.
Iran, a major player in the global oil market, is estimated to be responsible for around 4% of global supply. If Israel were to target Iran’s oil facilities, it could disrupt oil flows from the key exporting region, leading to a significant increase in oil prices. Analysts at Goldman Sachs predict that a sustained fall in Iranian output could send oil prices up by $20 a barrel, while SEB warns that crude futures could rally to over $200 a barrel in an extreme scenario.
Despite the risks, oil prices have yet to reach new heights, with some analysts attributing this to a large short position in the market. “The market is so short,” said Amrita Sen, founder and director of research at Energy Aspects. “We’ve never seen these levels of record shorts before.” Many oil traders have taken a bearish position, expecting China’s stimulus rally to fail and OPEC and non-OPEC allies to boost oil production later in the year.
However, if the situation escalates, oil prices could surge quickly. “The market has just gotten itself into this fit of around bearishness, but that’s why if it goes, we could be above $80 very quickly,” Sen said.
International benchmark Brent crude futures stood at $78.26 a barrel on Friday, while U.S. West Texas Intermediate futures traded at $74.34. The oil market is currently backwardated, meaning that the futures price of oil is below the spot price, indicating a near-term supply shortage.
Tensions between Israel and Iran have been escalating, with Israeli Prime Minister Benjamin Netanyahu pledging to respond with force to Iran’s ballistic missile attack. Iranian President Masoud Pezeshkian has warned of a forceful response from Tehran to any further Israeli actions.
The situation is being closely watched by market participants, with some analysts warning that oil prices could surge further if the conflict escalates. “I think it is definitely a little bit about short covering, but [the price rally] is surprisingly weak … given the scenarios that might play out in the Middle East,” said Bjarne Schieldrop, chief commodities analyst at SEB.
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