Weekly Oil Prices Increase Due to Escalating Tensions in the Middle East
Oil prices have been on the rise over the past week, with Brent and West Texas Intermediate (WTI) prices experiencing strong gains. The increase in prices can be attributed to escalating tensions in the Middle East, particularly related to the conflict between Israel and Hamas.
For the fifth consecutive session, oil futures settled higher on Friday. WTI crude for March delivery gained 62 cents to settle at $76.84 a barrel, with the contract advancing 6.3% for the week. This marked the largest five-day percentage gain for the U.S. benchmark since December 20. Similarly, April Brent crude, the global benchmark, was up 56 cents to finish at $82.19 a barrel, recording a 6.3% surge for the week.
Gasoline and heating oil also saw gains during the week. March gasoline was up 8.9% for the week, while March heating oil recorded an 11.4% weekly gain. However, natural gas for March delivery fell by 3.7% for the week.
The main market driver for the increase in oil prices was the escalating tensions in the Middle East. The Brent crude price surpassed the $82-a-barrel threshold as Israel launched new air strikes in Gaza while rejecting a Hamas offer for a cease-fire and the return of hostages held in Gaza. These actions have raised concerns about potential disruptions in crude supplies and have contributed to the rise in oil prices.
Although oil prices experienced a temporary increase when the Israel-Hamas conflict broke out, they have remained within a range as there has not been a significant disruption in crude supplies. Both Brent and WTI are trading below their 2023 highs set in late September. However, Brent’s move above $80 per barrel could trigger concerns about inflationary pressures.
Deutsche Bank strategists led by Jim Reid have noted that Brent’s rise above $80 per barrel may cause some nervousness about inflation. The annual rate of inflation in the fourth quarter remains unchanged at 3.3%, according to the government’s annual revisions released on Friday. While price increases are slowing towards pre-pandemic levels, the revisions have lowered the monthly rate of headline inflation from December.
In addition to the tensions in the Middle East, there have been other incidents impacting oil markets. Ukraine launched drone attacks against two oil refineries in southern Russia, resulting in a massive fire at one of the facilities. These events highlight the volatility and geopolitical risks associated with the oil industry.
Overall, the increase in oil prices over the past week can be attributed to escalating tensions in the Middle East, particularly the conflict between Israel and Hamas. While the conflict has not yet led to significant disruptions in crude supplies, it has raised concerns about potential disruptions, leading to a rise in oil prices. As geopolitical risks continue to impact the oil market, investors and analysts will closely monitor developments in the Middle East and other regions that could influence oil prices in the future.
