Oil Markets Experience Volatility Amidst Geopolitical Tensions in the Middle East

Oil markets experienced volatility on Monday, October 7, 2024, as traders closely monitored the ongoing geopolitical tensions in the Middle East.

Oil prices rose on Monday, October 7, as traders monitored tensions in the Middle East following an Iranian missile attack on Israel.

Brent crude rose 34 cents to $78.04 a barrel by 0103 GMT. WTI gained 27 cents to $75.04.

Both contracts soared last week by more than 7%, marking their biggest weekly gain since early January 2023.

Prices rose after Iran fired missiles at Israel on Friday, targeting an Israeli military base in the Golan Heights. Israel said it intercepted the missiles and there were no casualties.

The attack follows Israel's air strikes on Syria on Thursday, which an Israeli official said targeted Iranian-backed militias and a shipment of advanced weapons from Iran to Hezbollah in Lebanon.

U.S. President Joe Biden said on Friday he did not know when Israel would respond to the Iranian missile attack, but he discouraged striking Iranian oil fields, suggesting Israel consider "other alternatives."

The statement eased some fears of an immediate disruption to Iranian oil, which has recently returned to near full production capacity.

Prices were also supported by a Saudi oil price hike for Asia and a cut for the United States on Monday.

Saudi Arabia raised its main oil prices for buyers in Asia by a greater-than-expected amount on Monday, increasing the premium for its Arab Light crude grade to $2.20 a barrel above the regional benchmark.

The world's top oil exporter also cut prices for all grades sold to the United States and trimmed prices for most grades heading to Europe.

Saudi Arabia typically sets its official selling prices (OSPs) between the fifth and the eighth of each month, following consultations with its main customers.

The options market for oil showed a clear bias towards bullish call options, indicating many traders expected prices to rise further.

A measure of implied volatility for Brent crude stood at its highest since late October 2023, underscoring the uncertainty in the market.

Financial institutions offered varying perspectives on the potential impact of the current situation.

Goldman Sachs Group Inc (GS.N) predicted Brent could surge to the $90s per barrel if Iran's oil supply is disrupted, while JPMorgan Chase & Co (JPM.N) suggested attacking Tehran's energy facilities might not be the preferred Israeli course of action.

Israel sent troops back into northern Gaza on Sunday and carried out aerial attacks and limited ground operations in Lebanon, keeping tensions high in both areas.

China, a key driver of global oil demand, is set to announce new economic policies on Tuesday.

The country's top economic planner will hold a press briefing on a package of measures aimed at boosting economic growth, following weak data last week.

Analysts expect potential expansions in public spending as part of China's stimulus efforts, which could impact oil demand.

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