Oil futures: Crude surges 4.5% on reports Israel eyeing Iran's oil facilities

3 Oct 2024

Quantum Commodity Intelligence – Brent crude futures surged past the $77/b mark Thursday as investors waited for Israel's next move in the heightened Middle East conflict, amid reports that oil facilities could be targeted.   

Front-month Dec24 ICE Brent futures were trading at $77.10/b (1740 GMT), compared to Wednesday's settle of $73.90/b.

At the same time Nov24 NYMEX WTI was trading at $73.24/b, versus Wednesday's settle of $70.10/b. 

Growing concerns that a further escalation of the war in the Middle East could disrupt crude oil supplies from the region has underpinned this week's rally, but prices remain highly volatile and headline driven.

The primary concern for oil watchers is any retaliatory strike by Israel against Iran's oil infrastructure, which are concentrated in the south of the country and offshore.

US President Joe Biden told reporters he did not believe any Israeli strikes against Iran would come on Thursday, but prices later surged to fresh five-week highs following a Bloomberg headline that Biden was said to be discussing an Israeli strike on Iranian oil facilities.

Tighter sanctions enforcement by the US could also curtail Iran's exports but the primary buyer, China, has in the past taken little notice of any international restrictions on Iranian oil trade.

Capacity

Additionally, OPEC+ has more than enough capacity to cover any shortfall from Iran, which the international community will likely push the group to release.  

"OPEC+ has 5.8 million barrels of spare capacity, so even if Israel attacks oil infrastructure, there is plenty of oil to plug the gap," noted Robert Yawger of Mizuho Securities.

Countering the uplift from geopolitical tensions, OPEC+ is already slated to start increasing output from December, but the final decision may not come until early November.

At this week's JMMC meeting the focus was on compliance, with a clear message to Iraq and other quota busters to rein in production.

Meanwhile, markets largely shrugged off reports that Libya's NOC is to lift the current force majeure measures, with the move largely priced in earlier in the week.