Oil prices surged after a shock attack on Israel by Hamas brought renewed instability to the Middle East.
More than 1,400 people have died since the fighting between Israel and militant group Hamas broke out over the weekend, in a conflict that has potential repercussions across the wider region. US crude futures settled above $86 a barrel, at one point rallying 5.4%.
While Israel’s role in global oil supply is limited, the bloody outbreak threatens to embroil both the US and Iran. Iran has become a major source of extra crude this year, alleviating otherwise tightening markets, but additional American sanctions on Tehran could constrain those shipments.
“Recently crude has been prone to overreact to geopolitical events and price increases have been short-lived,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “This situation may prove to be the exception,” with the market especially sensitive to potential supply disruptions.
Any retaliation against Tehran — amid reports that it helped to plan the attacks — could endanger the passage of vessels through the Strait of Hormuz, a vital conduit that transports much of the world’s crude and which the Iranian government previously threatened to close. Iran denied on Monday that it was involved in the assault.
The surge after the attacks added a fresh bout of volatility to a market that has seen sizable swings over the last month. In late September, Brent was on course to rally up to $100 a barrel as cuts from Saudi Arabia and Russia tightened the market, before retreating sharply last week as concerns about consumption and financial flows pulled prices lower.
Early trading on Monday saw a flurry of bullish activity in the Brent options markets, with call options that profit from higher oil prices outpacing — by more than three-to-one — bearish put options.
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