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Oil prices on Monday jumped above last week’s high amid mounting fears of escalating conflict in the Middle East.
Brent crude, the global oil benchmark, rose as much as 2.4 per cent to hit $79.94 a barrel, as Hamas fired rockets at Israel, which launched strikes against targets in Gaza and Lebanon. It was later trading at around $79.17.
The price, which had dropped sharply since early April, gained more than 8 per cent last week, the biggest weekly gain since January 2023, driven by Iran’s missile attack against Israel.
Traders are concerned about a potential strike against energy infrastructure in the region that could hinder oil supplies, or disruption in the Strait of Hormuz.
There are signs that hedge funds, many of which had been betting on oil extending this year’s falls, are beginning to adjust their positioning. Funds trimmed their large short bets against Brent and increased their long positions in the week to October 1, in the early stages of last week’s rally, according to ICE data.
However, computer-driven funds that tried to latch on to market trends were likely to have still been betting against oil as of Thursday, according to a model portfolio run by Société Générale.
Israel on Monday marked the first anniversary of Hamas’s deadly October 7 attack. Ceremonies held in southern Israel were disrupted by the group firing rockets into the territory from Gaza. Rockets also set off sirens in Tel Aviv.
The events come amid a fresh offensive by Israeli forces in northern Gaza and follow an incursion by ground troops into Lebanon, where Israel is trading fire with Iran-proxy Hizbollah.
US President Joe Biden on Thursday said Israel had discussed striking Iran’s oil facilities in retaliation for an Iranian missile barrage fired at Israel last week. He later suggested Israel should consider other options.
“If I were in their shoes, I’d be thinking about other alternatives than striking oilfields,” Biden said on Friday.
The Islamic republic exports 1.7mn barrels of oil a day, mainly from a terminal on Kharg Island, about 25km off the country’s southern coast.
Daan Struyven, an analyst at Goldman Sachs, told clients that a six-month disruption, hitting about 1mn b/d, would push Brent up to $85 in the middle of next year if Opec offsets the shortfall. Prices could climb to the mid-$90s without an offset, he forecast.
“Investors are focused on the risk that Israel and Iran may enter a cycle of retaliatory attacks that may escalate into a broader conflict,” Struyven said.
Additional reporting by Laurence Fletcher
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