Oil soars 10% in five days, logs biggest weekly gain in one year over Israel-Iran war; Brent sits at $78/bbl

International crude oil prices settled higher in the previous session, logging their biggest weekly gains in over a year on the mounting threat of a region-wide war in the Middle East due to Israel and Iran. However, gains were limited as US President Joe Biden discouraged Israel from targeting Iranian oil facilities.

Brent crude futures rose 43 cents, or 0.6 per cent, to settle at $78.05 per barrel, while US West Texas Intermediate crude futures gained 67 cents, or 0.9 per cent, to close at $74.38 per barrel. On a weekly basis, Brent crude gained over eight per cent, the most in a week since January 2023. 

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The US WTI benchmark gained 9.1 per cent week-over-week, the most since March 2023. Back home, crude oil futures settled 3.07 per cent higher at ₹6,350 per barrel on the multi-commodity exchange (MCX).

Oil sizzles 10% in a week: What's driving the commodity?

-Israel has sworn to strike Iran for launching a barrage of missiles at Israel on Tuesday after Israel assassinated the leader of Iran-backed Hezbollah a week ago. The events had commodity and oil analysts warning clients of the potential ramifications of a broader war in the Middle East.

-Crude oil prices jumped nearly two per cent during the last session but pulled back after US President Biden said that if he were in Israel's shoes, he would consider alternatives to striking Iranian oil fields. On Thursday, oil surged over five per cent after Biden confirmed the US was in talks with Israel on whether it would support a strike on Iranian energy infrastructure.

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-JPMorgan commodities analysts wrote on Friday that Israel would not prefer an attack on Iranian energy facilities. Still, low global oil inventories suggest that prices will be elevated until the conflict is resolved. Citing data from ship-tracking service Kpler, they said inventories are below last year's levels when Brent traded at $92 and 4.4 billion barrels, the lowest on record.

-Brokerage StoneX forecasts oil prices could jump between $3 and $5 per barrel if Iranian oil infrastructure is targeted. On Friday, Iran's Supreme Leader, Ayatollah Ali Khamenei, appeared in public for the first time since his country launched the missile attack. He called for more anti-Israel struggle.

-According to news agency Reuters, Iran will target Israeli energy and gas installations if Israel attacks it, the semi-official Iranian news agency SNN quoted Revolutionary Guards deputy commander Ali Fadavi as saying.

-Iran is a member of the Organisation of Petroleum Exporting Countries (OPEC), producing around 3.2 million barrels per day, or three per cent of global output. The group's spare production capacity should allow other members to boost output if Iranian supplies are disrupted, limiting oil price gains.

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-Supply fears have also eased in Libya. According to Reuters, the country's eastern-based government and Tripoli-based National Oil Corp on Thursday said that all oilfields and export terminals were being reopened after a dispute over the central bank's leadership was resolved.

Where are oil prices headed?

Given the region's significant influence on global oil supplies and investor sentiment, gold and crude oil tend to experience heightened volatility during periods of geopolitical tension, particularly in the Middle East.

“In geopolitical instability, particularly in the Middle East, crude oil prices react sharply to concerns over supply disruptions. The uncertainty fuels a flight to safety in gold and drives energy markets to speculate on potential oil shortages, making both commodities a barometer of global risk sentiment," said Narinder Wadhwa, Managing Director at SKI Capital Services Ltd -a SEBI registered AIF and RTA & category 1 merchant bank.

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Analysts said crude oil exhibited significant volatility and extended its gains, with WTI prices reaching five-week highs. Rising tensions between Iran and Israel have been driving up oil prices, especially after the US intervention.

“Crude oil prices have surged by approximately eight per cent this week, and further escalation of the conflict in the Middle East could continue to buoy prices. We anticipate continued volatility in crude oil prices. Support levels are $72.85–$72.20, with resistance expected at $74.20–$75.00. In INR terms, crude oil has support at ₹6,110– ₹6,050, while resistance is seen at ₹6,310– ₹6,380,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.