Middle East Tensions Lift Oil Prices

Oil edged higher on a report that Iran may be preparing to attack Israel from Iraqi territory in the coming days, though crude still finished the week lower amid skepticism that the war will disrupt supplies.

West Texas Intermediate surged as much as 3.2% on Friday before paring gains to settle below $70 a barrel, up 0.3% for the session. Global benchmark Brent rose 0.4% to settle near $73.

Oil notched a 3.2% decline for the week, which followed Israel’s limited attack on Iran over the weekend, a move that reduced some traders’ expectations that the conflict could threaten the region’s energy infrastructure. But after a steep drop on Monday, some analysts warned that the market had “relaxed too quickly,” and futures regained some of the lost ground in recent days. Oil options markets also provided signs that traders are once again pricing in large premiums for bullish call contracts.

The report from Axios on Thursday, which cited two Israeli sources it didn’t identify, said Iran is planning a strike on Israel through militias that it backs in Iraq, with the assault expected to be carried out using drones and ballistic missiles. While the report initially caused a spike in futures prices, the advance faded as traders questioned likelihood and extent of a possible flare-up in the conflict.

Israel and Iran are in a “quasi-choreographed dance of trying to project toughness without provoking an all-out war, but nonetheless, the day-to-day headlines surrounding the Middle East have been a big deal,” said Pavel Molchanov, an analyst at Raymond James & Associates Inc.

Also limiting crude’s gains were US economic data that showed the nation added fewer jobs than expected last month, though the figures were distorted by storms and labor disputes.

Developments in the Middle East this week had been pointing to a potential easing of hostilities, with Israel also considering a US-led proposal to end the conflict in Lebanon. Still, the Israeli military said the nation would hit back “very hard” should Iran attack again.

The oil market has a number of key events on the horizon, including the US election, a meeting of China’s top legislative body next week and a looming decision from OPEC+ on whether to start gradually reviving production starting in December. Macquarie analysts said in a note that market participants are underestimating US production, which hit a new record in August.

China’s manufacturing activity, meanwhile, unexpectedly picked up in October despite a weeklong holiday. The readings offer a sign of stabilization after Beijing unleashed stimulus to shore up the economy. In another sign of improved confidence, residential property sales in the nation rose last month, the first year-on-year increase of 2024.

Oil Prices:

• WTI for December delivery advanced 0.3% to settle at $69.49 a barrel in New York.
• Brent for January settlement rose 0.4% to settle at $73.10 a barrel.