Oil futures: Crude nudges higher as Middle East tensions eyed

Quantum Commodity Intelligence – Crude oil futures opened the week on a firmer footing following an escalation in Middle East geopolitics over the weekend, although surrendered most of the early gains after European and US markets opened.

Dec24 ICE Brent futures were trading at $71.77/b (1750 GMT), compared to the intraday high of $72.79/b and Friday's settle of $71.54/b, while Nov24 was trading $71.85/b heading into the expiry.

At the same time Nov24 NYMEX WTI was trading at $68.20/b, versus Friday's settle of $68.18/b. 

Benchmarks started the session higher, continuing to recover from last Thursday's two-week lows after the killing of Hezbollah chief Hassan Nasrallah during a series of Israeli air raids on Beirut, which analysts said marks a significant ramp up in the regional war.

"The recent escalation of attacks in the Middle East is increasing the likelihood of Iran being directly dragged into the conflict, putting a significant risk around supply disruptions at the OPEC producer," commented  ANZ bank in its latest research note.

However, any price uplift was viewed as limited unless a further escalation in tensions disrupts regional oil flows.

Events continue to unfold as Israel's defence minister, Yoav Gallant, hinted that Israel could launch a ground invasion of Lebanon, after he told troops in the north of the country that "We will use all of our capabilities – including you."

Saudi

Oil prices tumbled last week following a report in the Financial Times that OPEC+ kingpin Saudi Arabia was backing plans for the group to implement scheduled output hikes from December, which Reuters also reported was a move supported by the wider group.

However, without a formal confirmation the slated production increases have not been fully priced in, while any final decision might not be until the early-November OPEC+ ministerial meeting.  

The off-the-record comments from Saudi officials could also be a broadside aimed at coalition members not abiding by the agreed quotas.

"Saudi Arabia's frustration with non-compliant members like Iraq, Kazakhstan, Russia, and the UAE is evident. They could be signaling a willingness to increase production unless cheating stops," said Ole S Hansen, Head of Commodity Strategy at Saxo Group.

Meanwhile, US offshore producers have largely restored oil output following the precautionary shutdowns ahead of Hurricane Helene, although traders were currently eyeing a new storm in the Atlantic, currently designated as Tropical Storm Kirk.

Later Monday investors will be monitoring comments from the US National Association for Business Economics conference by Fed Chair Jerome Powell, looking for any hints on the likelihood of a follow-up interest rate cut in November after borrowing costs were reduced by 50 basis points in September.