Brent crude prices touched the $78 per barrel mark in early trade on October 4, clocking its biggest one-day rise in almost a year after President Joe Biden told reporters the US was discussing whether to support potential Israeli strikes against Iranian oil facilities.
Turmoil in the Markets
The surge in crude prices is showing up in the share prices of oil exploration PSU ONGC, which is higher by over 2% in Friday's session, while oil marketing companies IOC, HPCL and BPCL are lower by 1-2.5%.
Investors are worried about an Israeli strike on Iranian oil refining assets, which may evoke a retaliation and thus escalate the ongoing conflict.
Read More: How oil surge can spoil the stock market sentiment
Centre Watching Closely
CNBC-TV18 quoted government officials on October 4, who said that India is bound to be impacted by the spillover of the ongoing global development and it is watching crude prices closely but is not unduly worried. Centre has tools to deal with volatile crude oil prices, the official said, adding that India has seen much higher crude oil prices in the past, and current prices are not at those levels yet.
Read More: What the oil spike means for India's macros
Biden 'Discussing' Israel's Response
United States, the European Union, and other allies have called for an immediate ceasefire in the conflict, and President Biden said the US was discussing with Israel its response, including strike on Iran's oil facilities. "We're discussing that," Biden told reporters.
"First of all, we don't 'allow' Israel, we advise Israel. And there is nothing going to happen today," Biden told reporters at the White House on Thursday. When asked if he was urging Israel not to attack Iran's oil installations, Biden said he would not negotiate in public.
Risk of Supply Disruption?
“The market fear is that there could be supply disruptions coming out of Iran,” Bloomberg News quoted Tai Hui, chief Asia market strategist for JPMorgan Asset Management. "Demand for oil should remain healthy, but at the same time the risk to the supply side is very much there."
Both Nymex and Brent crude prices were headed for weekly gains of about 8%.
"The question now is whether there will be an actual disruption in crude supplies, and that should keep prices in a waiting game over the weekend," IG market strategist Yeap Jun Rong told Reuters.
ANZ analysts said in a note, "Supply risks are back in focus as tension in the Middle East rises, but we expect the impact to be limited."
The note added that any strike by Israel on Iran's oil assets "would upset its international partners while a disruption to Iran's oil revenue would likely leave it with little to lose, potentially provoking a more ferocious response."
It should be noted that oil producers' cartel OPEC has spare production capacity, and global crude supplies are not yet disrupted by the Middle East unrest.
Israel's Action Continues
Meanwhile, a Hezbollah stronghold in Beirut saw Israeli air strikes overnight, according to a Reuters report, targetting Hashem Safieddine, the rumoured successor to assassinated leader Hassan Nasrallah.
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