Oil prices recorded their second consecutive weekly gain, primarily due to escalating tensions in the Middle East. The developments in the region have raised concerns about the potential spread of the conflict, leading to price fluctuations.
US Efforts to Delay Israel’s Invasion
Efforts by the United States to delay Israel’s planned invasion of Gaza played a significant role in influencing oil prices. Israel initially resisted postponing what was expected to be a massive military operation to eradicate Hamas. However, under US pressure, Israel agreed to hold off on its attack. This move comes as Israel shifts its tone in recent days, suggesting a more limited approach to reduce civilian casualties.
Humanitarian Aid and Geopolitical Concerns
President Joe Biden announced that trucks carrying aid supplies would cross into Gaza within the next 24 to 48 hours, indicating a commitment to humanitarian efforts in the midst of regional tensions. The situation in the Middle East remains complex, with various incidents fueling concerns of the conflict drawing in other regional actors.
Impact on Oil Prices
The developments brought oil prices down on a specific day after several incidents had raised the potential for the conflict to involve Iran. Israel conducted strikes in Gaza and responded to fire from Lebanon, while the US witnessed increased drone attacks in Iraq and Syria. Additionally, an American destroyer intercepted cruise missiles fired towards Israel by Houthi rebels in Yemen.
West Texas Intermediate’s more-active December contract fell, settling near $88 a barrel on that particular day. Despite the temporary dip, it still marked a second consecutive weekly gain. The options market has witnessed heightened activity as traders position themselves in response to the risk of further crude oil price surges.
While geopolitical risks have driven oil prices approximately $7 higher than they would be under normal circumstances, analysts suggest that even a further spread in the conflict may not lead to sustained higher prices.
US Energy Department’s Replenishment Efforts
In unrelated news, the US Energy Department announced its intention to purchase up to 6 million barrels for the Strategic Petroleum Reserve, as it continues efforts to replenish the stockpile following a record withdrawal.