U.S. Crude Oil Edges Toward Second Weekly Gain Amid Rising Tensions with Iran

U.S. and global benchmark crude oil prices have made modest gains this week, with U.S. crude on track for its second consecutive weekly increase. The gains come amid escalating tensions in the Middle East, particularly between Israel and Iran. The U.S. benchmark has shown a 1% increase this week, while the global benchmark, Brent, has risen by 0.8%. Since Iran launched ballistic missile strikes on Israel last week, oil prices have surged by over 10% through Thursday's close.

Challenges to Sustaining Bullish Price Momentum

Despite the recent gains, sustaining bullish momentum in the oil market has proven to be challenging. According to Natasha Kaneva, head of global commodity strategy at JP Morgan, the 'war' and 'stimulus' premiums in oil have shown a tendency to fade without additional catalysts. This suggests that market participants are grappling with the uncertainty surrounding geopolitical developments and their potential impact on oil supply and demand dynamics.

Current Energy Prices

As of Friday, the following energy prices were recorded:

• West Texas Intermediate November contract: $75.21 per barrel, down 64 cents, or 0.84%. Year to date, U.S. crude oil has gained nearly 5%.

• Brent December contract: $78.77 per barrel, down 63 cents, or 0.79%. Year to date, the global benchmark has increased about 2%.

• RBOB Gasoline November contract: $2.1414 per gallon, down 0.44%. Year to date, gasoline is ahead 1.7%.

• Natural Gas November contract: $2.685 per gallon, up 0.37%. Year to date, gas has risen about 6%.

Israel's Response to Iran's Attack

Amid these developments, Israel's security cabinet convened on Thursday to deliberate on the country's response to Iran's attack. Concurrently, U.S. President Joe Biden and Israeli Prime Minister Benjamin Netanyahu held a phone conversation to discuss the situation. Traders are particularly concerned that Israel might target Iran's oil industry, potentially leading to a cycle of escalation that could disrupt supplies in the Middle East significantly. In response, efforts have been made to discourage Israel from targeting Iran's oilfields, with the Arab Gulf states reportedly lobbying the White House to exert pressure on Israel to refrain from striking Iranian energy infrastructure.

U.S. Influence on Israel's Response

Helima Croft, head of global commodities strategy at RBC Capital Markets, posited the possibility that the White House might be urging Israel to focus on refineries instead of oil export facilities, with the rationale that the economic impact would be more directly felt by Iran. However, Croft cautioned that the U.S. influence may have diminished since April, when Israel's response to Iran's initial missile and drone attack was relatively subdued. This raises questions about the potential effectiveness of diplomatic efforts in shaping Israel's military response to further provocations from Iran.