U.S. crude futures rose more than 3% on Wednesday after the assassination of Hamas political leader Ismail Haniyeh in Tehran, reigniting concerns that the Middle East is on the brink of regional war.
Here are energy prices for Wednesday:
- West Texas Intermediate Oil September contract: US$77.28 per barrel, up US$2.55, or 3.51%. U.S. oil prices have risen 7.9% so far this year.
- Brent September contract: US$80.73 per barrel, up US$2.10, or 2.67%. Year to date, the global benchmark is ahead by 4.8%.
- RBOB gasoline August contract: $2.44 per gallon, up 5 cents, or 2.41%. So far this year, gasoline prices are up 16.2%.
- natural gas September contract: $2.08 per thousand cubic feet, up 4 cents, or 2.07%. Natural gas prices are down 17% so far this year
Iran’s paramilitary Revolutionary Guards accused Israel of assassinating Haniyeh at his residence in Tehran. According to Google Translate, Iran’s Supreme Leader Ayatollah Ali Khamenei said that Iran has the responsibility to punish Israel for this behavior Report by the state-run Islamic Republic News Agency.
Haniyeh’s assassination casts more uncertainty over a possible Gaza ceasefire agreement between Israel and Hamas. Haniyeh is the senior negotiator in the negotiations.
CNBC has contacted Israel’s Foreign Ministry and Prime Minister’s Office for comment.
Oil prices rose as hostilities intensified in the oil-rich Middle East.
Since then, Israel has decided to retaliate in the Gaza corridor, leading to an expansion of the conflict, with Israel fighting other Iranian-backed factions such as Hezbollah in Lebanon and the Houthis in Yemen.
Oil markets have so far absorbed the shock of a gradual escalation in the Middle East, exacerbated intermittently by trade disruptions from maritime attacks in Yemen and direct hostilities between Israel and Iran or Hezbollah.
Clay Seigle, global director of oil services at Rapidan Energy Group, told CNBC’s Emily Tan that oil traders have been “mispricing” geopolitical risks in the Middle East, with expected disruptions in oil supplies from the Middle East leading to “a bit of optimism” in the market. “Never materialized” and the 10-month war in the Gaza enclave.
“But now we are entering a phase of deterioration in the Middle East, which we believe will catch the attention of oil traders and prompt them to return some significant risk premiums into the Brent price. At least $5 (per barrel) even before we See potential physical supply disruptions before they start,” he said.
“The events we’ve seen over the past 1-3 days mark a pretty sharp deterioration that has the potential to move us out of the containment escalation phase we’ve seen between the two sides since October 7 and take steps as we move into oil and new areas of the natural gas market,” he added.
Other analysts have questioned whether the latest upgrade has the potential to support oil prices in the long term.
“I think the fact that the assassination took place on Iranian soil increases the risk and danger of actual supply disruptions and therefore higher oil prices,” PVM Associates oil analyst Tamas Varga told CNBC.
“Nonetheless, I believe that unless further escalation clearly threatens the region’s physical output, its supportive impact will not be lasting.”
UBS analyst Giovanni Staunovo echoed the sentiment.
“Concerns about escalating tensions in the Middle East have pushed crude oil prices higher. That said, oil’s geopolitical risk premium will only persist in the event of supply disruptions. The reaction in oil prices has been muted as there have not been any incidents so far. Supply disruption situations.
The price change comes as the influential OPEC+ technical committee, which includes the Organization of the Petroleum Exporting Countries and its allies, is set to meet on Thursday to assess members’ compliance with production quotas. While this joint ministerial monitoring committee does not have the power to adjust the alliance’s formal output strategy, if market conditions warrant such a step, it could convene a formal ministerial meeting to do so.
Quota compliance has come under review by the organization, OPEC Secretariat Noted on July 24 OPEC+ members Iraq, Kazakhstan and Russia have informed that they plan to further reduce production from July 2024 to September 2025 to make up for the production surplus in the first half of the year.
The events also come during a week when European oil majors report earnings. Shell is set to report earnings on Thursday after BP raised its dividend on Tuesday and reported a better-than-expected second-quarter profit.
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