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Oil prices jump 3% as Middle East conflict intensifies

By Reuters
Israelis take shelter during Iran's missile attack. Oil prices have jumped over fears of a wider war Reuters/Ronen Zvulun
Israelis take shelter during Iran's missile attack. Oil prices have jumped over fears of a wider war
  • Brent and WTI spike after Iran attack
  • Iranian oil output at six-year high
  • Opec+ ministers to meet today

Oil prices rose by more than 3 percent on Wednesday as Israel vowed retribution for Iran’s ballistic missile attack on its regional adversary.

The conflict has intensified rapidly, with Israel also ordering more soldiers into Lebanon to battle the Iran-backed group Hezbollah. There is little sign of de-escalation despite international pleas.

That has sent oil prices surging, with Brent futures up $2.26, or 3.07 percent, to $75.82 a barrel. US West Texas Intermediate (WTI) crude jumped $2.38, or 3.42 percent, to $72.22 at 13:20 GMT.

Both crude benchmarks surged by more than 5 percent on Tuesday before closing around 2.5 percent higher.

Iran said early on Wednesday that its missile attack on Israel was over – barring further provocation.

Israeli and US retaliation “could include damaging or obliterating Iran’s oil facilities”, said Tamas Varga of oil broker PVM.

Tehran warned that any Israeli response would be met with vast destruction.

Varga said retaliation by Iran or its allies could strike Saudi oil facilities, as in 2019, or lead to the closure of the Strait of Hormuz. “Any of these events would irretrievably send oil prices considerably higher.”

In another escalation of the conflict on Wednesday, the Israeli military sent regular infantry and armoured units to join ground operations in southern Lebanon against Hezbollah.

The UN Security Council scheduled a meeting about the Middle East for Wednesday and the European Union called for an immediate ceasefire.

Iran’s oil output rose to a six-year high of 3.7 million barrels per day (bpd) in August, according to ANZ analysts.

“A major escalation by Iran risks bringing the US into the war,” Capital Economics said in a note. “Iran accounts for about 4 percent of global oil output, but an important consideration will be whether Saudi Arabia increases production if Iranian supplies were disrupted.”

A panel of ministers from Opec+ states, which includes Russia, is meeting to review the market. No policy change is expected.

The group is set to raise output by 180,000 bpd each month from December.

“Any suggestion that production hikes will proceed could offset concerns of supply disruptions in the Middle East,” ANZ analysts said.

However, Saudi Arabia’s oil minister said last week that oil prices could drop to as low as $50 per barrel if Opec+ members do not stick to agreed production limits, the Wall Street Journal reported on Wednesday.

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