The week is coming to an end with global energy prices rising sharply as a number of supply-related worries have unnerved investors. The benchmark prices for oil, Brent crude, increased by more than 4% on Friday to close at about $90 per barrel. The US benchmark, West Texas Intermediate crude oil futures, increased 4.2% to $86 a barrel.
According to Edward Moya, a senior market analyst at Oanda, the main cause is the violence currently raging in Israel, and worries that it may spread to other parts of the oil-rich Middle East
He told media outlets that “developments with the Israel-Hamas war are very sensitive to the oil market.” There are concerns that, despite the fact that US production has reached record highs, there may soon be a significant shock to supplies.
Analysts told media outlet earlier this week that markets were afraid of a potential escalation that may involve Iran due to the war, which was launched by a deadly attack by Hamas terrorists over the weekend.
Iran has long been charged by Israel with engaging in a type of proxy war through supporting organizations that have waged war against it, such as Hamas. Tehran has refuted any participation in the strikes over the weekend.
But analysts warned that if a definite connection to Iran materializes, some sort of American involvement cannot be ruled out. That would probably necessitate a stricter application of the current sanctions against Iran’s oil exports.
In preparation for a future ground assault, Israel has urged the 1.1 million residents of Gaza under the control of Hamas to relocate south and has activated 300,000 reservists. In order to defend against any potential assault by militants of Hezbollah, another organization Iran supports, the Israel Defence Forces have also dispatched extra troops to the nation’s northern border with Lebanon.
It’s challenging to predict how an escalation will play out. “I believe that a direct conflict with Iran is what’s really fueling the fears, and [those fears] seem to be intensifying day by day,” Moya said.
Brent is expected to end the week 1.7% higher, which would be a significant improvement after it dropped 11.3% the previous week, marking its worst weekly decline since March.
Natural Gas Supply Risks
The market for natural gas in Europe has also been significantly impacted by the situation in Israel.
Before modestly reversing course later in the day, benchmark gas futures in Europe rose as much as 5.7% on Friday to €56 ($59) per megawatt hour. Since last Friday, prices have jumped by 44%.
Massimo Di Odoardo, vice president of gas and liquefied natural gas (LNG) research at Wood Mackenzie, said in an interview with a media outlet that there was a serious risk to Europe from the temporary shutdown on Monday of an Israeli gas field that supplied gas to Egypt, Jordan, and Israel’s power market in addition to Egypt and Jordan.
Bottom Line
Prices are still far lower than they were at this time last year when Europe was just getting out of an energy crisis brought on by Russia’s conflict in Ukraine when they topped €156 ($165) per megawatt hour. Additionally, Marzec-Manser predicts that the coming winter in Europe will be negative for the petrol market.
However, he added, “Compared to historical rates, we expect consumption from the residential and industrial sector to remain quite muted” as long as petrol prices stay high, despite the fact that demand is anticipated to increase as the weather gets colder.
