Oil prices jump to two-week highs 

Oil prices saw a sharp increase of nearly 2% on Wednesday, with mounting tensions in the Middle East fueling concerns about potential disruptions in the region's oil supply. The surge was triggered by a blast at a Gaza hospital that claimed hundreds of lives. 

At 1245 GMT, Brent crude futures rose by $1.32 — a 1.5% uptick — reaching $91.22 per barrel. U.S. benchmark West Texas Intermediate (WTI) crude futures saw a gain of $1.36, a 1.52% increase, with prices reaching $87.96 per barrel.  

Earlier in the session, both benchmarks climbed over $2, reaching their highest levels in two weeks. The market incorporated risk premiums in response to the explosion at a Gaza City hospital on Tuesday, in which hundreds of Palestinians lost their lives. 

Further escalating the situation, Jordan canceled a summit it had scheduled with U.S. President Joe Biden, as well as Egyptian and Palestinian leaders. President Biden commenced his visit to Israel on Wednesday, embarking on consultations regarding the ongoing conflict in Gaza. 

In a recent overview, Markets.com Chief Market Analyst Neil Wilson pointed to the war’s inflationary effects, as well as the added impact of rising shipping costs in the Mediterranean: 

“Oil maybe hasn’t gone up as much as it might have although it jumped to its highest in two weeks this morning with Brent above $92 – we’re not very good at pricing geopolitical risks and tails. And shipping costs are going up a lot in the Med ...supply chain costs rising which means more inflation! We are in a new paradigm where the default is to go higher. War is inflationary.” 

"This turn of diplomatic fortunes again garners fear of conflict spread and therefore the leap in oil," John Evans of oil broker PVM told Reuters, joining multiple analysts who have pointed to further escalation in the Middle East as the main driver of safe-haven assets and commodities worldwide 

Oil price forecast: Markets “on tenterhooks” as investors eye Middle East for signs of further escalation 

Rising tensions in the Middle East have markets on edge, as noted by the International Energy Agency’s report for October 2023. 

“The surprise attack by Hamas on Israel on October 7 spurred traders to price in a $3-4 per barrel risk premium when markets opened. While there has been no direct impact on physical supply, markets will remain on tenterhooks as the crisis unfolds”, the report read. 

In an analysis posted on the Energy Workforce and Technology Council (EWTC) website last week, the organization’s president, Tim Tarpley, said that the attack on Israel “came as a surprise to many Western intelligence agencies” and warned that “the implications to the world energy markets and world trade are unclear at this point but could be quite significant”. 

“Should the conflict remain localized with only Israel and Gaza involved, markets may remain relatively stable. However, if the conflict pulls in other regional players or the United States, the effects could be quite wide-ranging. […] Should the conflict grow, Iran has long threatened to shut down shipping activity in the Strait of Hormuz. […] Such an action on the part of Iran could cause significant disruption to world energy markets and international supply chains, and will certainly cause a supply crunch,” Tarpley wrpte. 

In a report sent to industry website Rigzone last week, analysts at Standard Chartered revealed that they thought there was no significant geopolitical premium in oil prices. 

“The price response to the escalation in the Middle East violence has so far been modest and caused, in our view, by short covering by some of the more extreme market bears who now think that the potential for an extreme price downside is more limited,” the analysts wrote. 

“However, we believe prices are likely to respond to further escalation more significantly,” they added. 

Oil price news: Other support factors include fall in U.S. crude stocks, China growth 

Aside from the Israel-Hamas war, several other factors have provided support to the oil price in recent days.  

In the week ending on October 13, U.S. crude inventories saw a steeper decline than anticipated, with a drop of 4.4 million barrels compared to the expected decrease of 300,000 barrels, as per reports citing figures from the American Petroleum Institute, released on Tuesday. 

On the demand front, official data on Wednesday revealed that China's economy grew at a faster rate than expected in the third quarter. This suggests that recent policy measures have been effective in supporting a cautious economic recovery.  

Nevertheless, analysts have remained cautious about China's economic outlook, given the ongoing challenges in the country's real estate sector. 

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