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Published: October 18, 2023
Updated: October 18, 2023

Oil Prices Surge Amidst Escalating Middle East Tensions Due to Gaza Hospital Bombing

The Middle East faces rising tensions following a tragic explosion at a Gaza hospital, just ahead of President Joe Biden's visit to the region. This incident has driven oil prices higher, with West Texas Intermediate surpassing $88 a barrel, after experiencing a fluctuation of over $2 on the previous day. The escalating conflict has also disrupted plans for a summit with leaders from Jordan, Egypt, and the Palestinian Authority, complicating President Biden's efforts to contain the Israel-Hamas conflict.

Impact on the Oil Market:

The global oil market is in turmoil due to the regional crisis triggered by Hamas' attack on Israel on October 7th. Concerns are mounting about the conflict spreading beyond Gaza and potentially involving Iran, which supports Hamas. This widening conflict poses a significant threat to the oil supply, further straining an already stretched oil market after months of OPEC supply cuts. Warren Patterson, head of commodities strategy for ING Groep NV, warns, "Clearly a widening of the conflict would bring more supply risks to a market which is already very tight." The most immediate supply risk remains centred around Iranian oil.

Tehran has already expressed concerns about the escalation of the conflict, stating that such an outcome is increasingly "inevitable." Israel, on the other hand, has indicated its determination to eliminate Hamas, amassing thousands of troops along the Gaza border in anticipation of a ground invasion.

Gaza Hospital Blast:

The hospital explosion that claimed hundreds of lives has led to conflicting claims. The Hamas-controlled Gaza authorities attribute the incident to an Israeli airstrike, while Israel points to a failed missile launched by the militant group Palestinian Islamic Jihad. The Pentagon has not confirmed responsibility for the explosion.

Oil Stockpiles and Timespreads:

In the context of the Middle East crisis, the focus also turns to oil stockpiles. In the U.S., the American Petroleum Institute reports a reduction of approximately 1 million barrels in Cushing, Oklahoma. If confirmed by official data, this would mark the lowest inventory levels since 2014.

Timespreads continue to indicate strength, with the gap between global benchmark Brent's two nearest contracts at $1.45 a barrel in backwardation, compared to $1.14 a month ago.

The situation in the Middle East remains highly volatile, with escalating tensions causing significant fluctuations in oil prices. The region's instability and potential implications on the oil market continue to be a source of concern. The world watches closely as efforts are made to address the conflict and stabilize the situation in the Middle East.