Oil prices continued to rise on Wednesday as concerns over supply disruptions after Iran attacked Israel dominated sentiments in the market.
On late Tuesday, Iran fired about 180 ballistic missiles towards Israel, according to the Israeli military.
This was the second time in 2024 that Tehran has attacked Israel after it fired hundreds of missiles and drones in April.
The attack on Israel escalates the ongoing geopolitical conflict in the Middle East, involving Israel and Hamas.
The full-fledged involvement of another nation in the region makes things even more fragile.
Iran reportedly said Tuesday’s attack was in response to Israel’s killing of one of its top commanders and leaders of Iran-backed militias in the region.
The Middle East sits on half of the world’s oil reserves.
Oil prices experience wild volatility
On late Tuesday, both oil benchmarks Brent and West Texas Intermediate spiked 5%, following Iran’s attack on Israel.
For most of the day, oil prices were in the red as poor global demand and prospect of more supply gripped the market.
At the time of writing, Brent crude oil on Intercontinental Exchange was $74.65 per barrel, up 1.5% from the previous close, while the price of WTI was 1.6% higher at $70.96 a barrel.
Brent crude prices touched a high of $75.45 per barrel on Tuesday, while WTI rose to nearly $72 a barrel. WTI prices were trading most of the day around $66-$68 a barrel on Tuesday.
Oil supply from Iran at risk
Iran is a member of the Organization of the Petroleum Exporting Countries and allies, and one of the prominent oil producers in the cartel after Saudi Arabia and Iraq.
Reuters quoted Capital Economics in a report:
A major escalation by Iran risks bringing the US into the war. Iran accounts for about 4% of global oil output, but an important consideration will be whether Saudi Arabia increases production if Iranian supplies were disrupted.
According to OPEC’s data, Iran produced around 3.28 million barrels per day of crude oil in August, only behind Saudi Arabia and Iraq.
Following the attack on Tuesday, the world is concerned that if Israel retaliates against Tehran, oil supply from the country is likely to suffer. This is pushing up prices.
Expectations from the OPEC panel meeting
Oil traders are also likely to monitor the meeting of the OPEC’s Joint Ministerial Monitoring Committee later on Wednesday to review the crude oil market.
The market expects OPEC’s committee to make no changes to the existing output policy of the cartel. OPEC and Saudi Arabia are set to unwind some of its voluntary production cuts from December.
ANZ’ Bank said in a note:
Any suggestion that production hikes will proceed could offset concerns of supply disruptions in the Middle East.
The market will also keep a watch on the situation in the Middle East.
The US has also vowed to support Israel, and President Joe Biden has termed Iran’s attack as “defeated and ineffective”.
Further escalations and increased involvement from the US could raise the geopolitical tensions in the region, threatening oil supply and thereby pushing up oil prices.
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