Oil shrugged off Iran’s unprecedented attack on Israel, with gains held in check by speculation that the conflict would remain contained as leading powers including the US urged restraint.
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(Bloomberg) — Oil shrugged off Iran’s unprecedented attack on Israel, with gains held in check by speculation that the conflict would remain contained as leading powers including the US urged restraint.
Global crude benchmark Brent crude initially rose just 0.7% to $91.05 a barrel in early trade, before trading flat. More than 300 missiles and drones were fired by Iran at the weekend, the first time it has struck Israel from its soil, though most were intercepted. The attack — which had been expected for days — came in retaliation for a strike in Syria that killed top Iranian military officers.
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Oil has been one of the strongest commodities this year as OPEC+ keeps a tight rein on supply to reduce inventories and support prices. The latest attack is ratcheting up tensions in a region that produces about a third of the world’s crude oil and represents the latest twist in a showdown that followed Tehran-backed Hamas’s attack on Israel last October. Still, Iran’s mission to the United Nations said the matter “can be considered closed,” reducing the risks of a major conflict for now.
Tensions in oil markets have risen significantly in recent months, driving up energy costs and causing headaches for central bankers as they try to curb inflation. Ahead of the weekend strike in Tehran, crude oil analysts had already raised the possibility that prices could hit $100 a barrel again.
According to a monthly report, OPEC – the producer cartel of which Iran is a founding member – said last week that oil would need to be closely watched in the coming months to ensure “a healthy and sustainable market balance.” The International Energy Agency, meanwhile, drew attention to another conflict, saying Ukrainian drone attacks on Russian oil refineries risk disrupting markets for petroleum products.
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The Iranian attack came as demand increased. U.S. refineries are preparing to ramp up fuel production for the summer, the traditional driving season when consumption peaks. In Asia, recent macroeconomic data from China suggests the economy may be turning around, improving the outlook for fuel consumption.
Shipping risks were also in focus after Iran seized a ship, the MSC Aries, near the key Strait of Hormuz waterway shortly before the attacks on Israel. The beneficial owner of the ship is part of the Israel-affiliated Zodiac Group, according to Bloomberg. The move raises concerns about the safety of ships in the region and adds to previous logistical disruptions caused by attacks in the Red Sea.
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