Oil and gas markets eye developments in Gaza war
Oil and gas markets are closely monitoring the developments of the Gaza conflict,
as the escalation of the war in Gaza increases the risk of disruption to global energy supplies.
Content:
Impact on Oil
Impact on Gas Fields
Market Reaction
Impact on Oil
The biggest risk to crude oil prices following the invasion is the possibility of the conflict spreading to other countries in the region. The Middle East produces around one-third of the world’s oil, and Iran, which supports Hamas and other armed groups in the region, has stated that the Israeli incursion “may force all parties to act.”
Oil prices rose in Friday’s trading as tensions in the region escalated, with Israel intensifying its ground operations in Gaza. West Texas Intermediate crude oil rose by 3.2% to over $85 per barrel. However, this price is still lower than its highest level since the beginning of the conflict, which was above $90 per barrel.
Giovanni Stonovo, a commodity analyst at UBS, said, “Fears that the war could escalate into a broader regional conflict, with the potential to disrupt oil supplies, increase the upside risks to crude oil prices.” “We are seeing price increases early in the week, despite no reports of supply disruptions so far.”
The outbreak of the conflict in Gaza has led to sharp fluctuations in crude oil prices, with prices rising by up to 3.2% at times. The oil market volatility index also reached its highest level since June. This is due to concerns about the possibility of the conflict spreading to other countries in the region, which could disrupt global crude oil supplies. Increasing tensions with Hezbollah, backed by Iran, in Lebanon also add to the concerns. The worst-case scenario for oil markets would be the closure of shipping traffic in the Strait of Hormuz.
Impact on Gas Fields
In contrast to oil supplies, natural gas production has already been affected by the repercussions of the conflict in Gaza. Israel closed the Tamar gas field, one of the world’s largest natural gas fields, following attacks by Hamas. This led to a complete cessation of gas imports from Israel to Egypt. Egypt relies on Israel for about 20% of its natural gas needs.
While this has been partially compensated for by increased production from the nearby Leviathan field, it still highlights some of the risks that threaten supplies in both markets. Gas-producing countries like Israel and Egypt can take measures to mitigate investor concerns, such as increasing production or lowering prices.
Market Reaction
As a result of this escalation, financial markets have heavily focused on oil due to the potential for the conflict to spread beyond Israel and Gaza.
Traders have been buying options contracts that could benefit from oil prices jumping above $100 per barrel in recent weeks.
Michael Tran, an analyst at RBC Capital Markets, said, “The volatility associated with spot oil contracts has reached recent highs.” He added, “There is a potential for price increases in the near term if the conflict spreads.”
Oil and gas markets eye developments in Gaza war