Oil prices extend gains, lifting Brent crude towards $80 on fears of wider Middle East conflict

Oil prices extended gains on Monday, with Brent nearing $80 to build on last week’s steepest weekly jump since early 2023, driven by fears of a wider Middle East conflict and potential disruption to exports from the major oil-producing region. Brent crude futures rose $1.09, or 1.4%, to $79.14 a barrel while U.S. West Texas Intermediate (WTI) crude futures were up $1.15, or 1.55%, at $75.53. WTI had earlier risen by more than $2. “Brent crude is back to challenge $80, with activity in the options market showing increased demand for hedging the risk of further gains amid worries about a minor or, in the worst case, major supply disruption from the Middle East,” Ole Hansen, head of commodity strategy at Saxo Bank said in a note.

Brent rose more than 8% last week while WTI soared 9.1% on the possibility that Israel could strike Iranian oil infrastructure in response to Iran’s Oct. 1 missile attack on Israel. Rockets fired by Iran-backed Hezbollah hit Israel’s third-largest city, Haifa, early on Monday. Israel, meanwhile, looked poised to expand ground incursions into southern Lebanon on the first anniversary of the Gazar war, which has spread conflict across the Middle East. That spread has raised fears that the United States, Israel’s superpower ally, and arch-foe Iran will be sucked into a wider war. ANZ Research, however, expects any immediate impact on supply to be relatively small. “We see a direct attack on Iran’s oil facilities as the least likely response among Israel’s options,” it said, noting the buffer provided by producer group OPEC’s 7 million barrels per day of spare capacity.

The Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russia, known collectively as OPEC+, are due to start raising production from December after cutting in recent years to support prices because of weak global demand. OPEC+ has enough spare oil capacity to offset Israel knocking out Iranian supply, but it would struggle if Iran retaliates by attacking installations of neighbouring Gulf nations, analysts have said. When the Middle East conflict began a year ago, Brent stood at $88.15. “While nothing can touch the emotion that the conflict has brought to the oil community, it has been well and truly smothered by macroeconomic considerations that have thwarted any idea of an increase in global demand,” said John Evans of oil broker PVM.