Oil Jumps 5% Amid Escalating Geopolitical Tensions
Oil prices have surged by up to 5% due to escalating tensions in the Middle East,
which represents a source of roughly one-third of the world’s crude oil.
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How Have Oil Futures Prices Reacted?
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The West Texas Intermediate (WTI) crude oil was trading at around $86 per barrel as concerns of war risk returned to the markets. Prices have sharply risen with the escalating tensions and threats of escalation in the region.
While the current events do not pose a direct threat to oil flows, there is a risk of the situation evolving into a more destructive conflict that could involve major powers. Any military response could jeopardize the passage of crude oil transport ships through vital maritime oil transit routes.
Fandana Hari, founder of the analysis firm “Fanda Insights” based in Singapore, said, “While keeping the worst-case scenario of a regional war in mind, it is not my base case. Restraint and cooler heads will prevail, as there will be no winners in a broader conflict.”
Futures for West Texas Intermediate and Brent crude oil had declined earlier in the month, dropping by approximately $10 per barrel before the recent events. Concerns about rising interest rates and economic growth slowdown had cast a shadow on demand expectations.
Focus on the Strait of Hormuz
These attacks come months after a easing of tensions between Washington and Tehran, and they represent a new threat to the stability of the Strait of Hormuz, a vital waterway necessary for the movement of nearly 17 million barrels of crude oil and condensates daily.
How Have Oil Futures Prices Reacted?
The weekend’s events have had an impact on the futures curve for oil, with the immediate time spread for West Texas Intermediate widening to $1.72 per barrel in a backwardation pattern, indicating supply-related tension in the market.
In this context, Warren Patterson, Head of Commodities Strategy at ING Groep NV, stated,
“The lack of movement in the near-term time spreads for WTI suggests there is little change in supply and demand fundamentals currently… though uncertainty about how the situation evolves is likely to support prices.”
Oil Jumps 5% Amid Escalating Geopolitical Tensions