The cost of oil on global markets fell on Tuesday morning as traders booked profits after crude prices rose to their highest in more than a month amid escalating conflicts in the Middle East.
International benchmark Brent crude fell 2 per cent to $79.16 a barrel as of 10:39 a.m. local time (0739 GMT), down from Monday’s close of $80.80. Meanwhile, US benchmark West Texas Intermediate (WTI) fell 2.18 per cent to $75.14 per barrel from the previous session’s close of $76.82.
The recent price rally began after Iran launched a series of ballistic missiles at Israel on October 1, marking heightened tensions in the region. Israeli Prime Minister Benjamin Netanyahu condemned Iran’s actions, calling them a “big mistake” and promising consequences. While there is speculation that Israel could strike Iran’s oil facilities, analysts say a direct strike is unlikely. Daniel Hynes, a commodities strategist at Australia and New Zealand Banking Group, said in an email:
Any impact loss of supply can be covered by OPEC’s 7 million barrels per day of spare capacity.
Tensions continue to rise, and the Israeli army has deployed a new division in southern Lebanon. In response, Hezbollah has stepped up rocket and artillery fire on Israeli troops. On Tuesday morning, the Israeli army said an airstrike in southern Beirut killed a senior Hezbollah commander.
Fears of the risks of strikes on Iran’s oil facilities were somewhat alleviated after President Biden discouraged Israel from such a move. In addition, last week Libya resumed oil production at all of its fields and export terminals, which in a calm environment should have had a moderately negative impact on prices. Another restraining factor: the Organisation of Petroleum Exporting Countries (OPEC) and its allies may start increasing production from December as scheduled, which would be very helpful against the backdrop of the current instability in oil prices.
Industry analysts believe that the OPEC+ alliance has enough spare oil capacity (about 5 million barrels per day) to compensate for a possible complete shutdown of Iran’s oil production (3.4 million barrels per day) and the problem is that Iran, after Israel’s response, could attack the production facilities of neighbouring Gulf states, which would risk a major war in a key area of global oil and gas production. Hence such a violent reaction in the cost of oil.
On Monday, Saudi Aramco, the state-owned company, was reported to have increased its official price for Arab Light sales to Asia for November by 90 cents month-on-month, although a 65-cent increase was expected. This is making Asian refiners nervous as the region gets most of its exports from the Gulf producer and a disruption in crude supplies from Iran would have unfortunate consequences for China’s refineries.
Meanwhile, Libya increased its oil production for the first time in two months to 1.067m b/d (August production was around 450k b/d) following the end of the political conflict in the country. Production at the largest field, Sharara, is close to its full capacity.
