Israel’s rejection of a ceasefire offer from Hamas has had a significant impact on the oil market, propelling prices towards weekly gains. The tensions in the Middle East have kept oil prices elevated, with Brent crude futures slipping slightly to $81.69 a barrel and U.S. West Texas Intermediate crude futures rising to $76.43 a barrel.
The rejection of the ceasefire offer by Israel’s Prime Minister Benjamin Netanyahu has led to increased conflict in the Palestinian enclave, causing oil prices to rise by about 3 percent in the previous session. The bombing of the southern border city of Rafah by Israeli forces further exacerbated the situation. The ongoing tensions have led to both Brent and WTI crude futures set to gain nearly 6 percent for the week.
Analysts have noted that the lack of regard for peace in the region has not been priced into the conflict premium. PVM analyst John Evans stated that with Israel’s offensive targeting all parts of the Gaza Strip, it was evident that there was not enough conflict-premium priced in. This suggests that oil participants expect the tensions to continue and potentially escalate.
While the conflict has affected oil prices, it has not impacted oil production. Non-OPEC output from countries like Norway and Guyana is increasing, and Russia is exporting more crude than planned under an OPEC+ deal. Russia’s increased exports can be attributed to a combination of drone attacks and technical outages at its refineries. Additionally, a fire broke out at the Ilsky oil refinery in Russia’s southern Krasnodar region, but it was quickly extinguished.
In addition to the Middle East tensions, the U.S. Treasury Department has sanctioned three entities based in the United Arab Emirates (UAE) and one tanker registered by Liberia for violating a cap placed on the price of Russian oil by Western nations. These sanctions could have implications for the global oil market.
Global oil prices are also being influenced by deflation risks in China, the world’s top crude oil importer. The potential for deflation in China is impacting global oil prices, according to IG analyst Tony Sycamore.
Overall, the rejection of the ceasefire offer by Israel and the ongoing tensions in the Middle East have had a significant impact on the oil market, leading to weekly gains. The lack of regard for peace and the potential for further escalation of the conflict have not been fully priced into the market. Additionally, other factors such as increased oil production from non-OPEC countries and sanctions on entities violating oil price caps are also influencing oil prices. The global oil market is likely to remain volatile as these various factors continue to unfold.
