Oil prices are rising again as Israel prepares to invade Gaza as soon as Saturday and the United States tightens sanctions on major crude-producing countries, sparking market fears over a drop in supply as demand increases.
On Friday morning, the price per barrel of West-Texas Intermediate, the benchmark for contracts to deliver oil produced in the U.S., climbed more than $3 to $86.10. Brent crude, the leading European benchmark, made a similar jump to $89.10. Murban crude, the measure for futures contracts of oil loaded at a major port in the United Arab Emirates, leapt to $91.10.
Each represented a nearly 4% increase from the previous day.
Oil prices surged at the start of the week after the Hamas militants who rule over the 2 million Palestinians living in Gaza launched a surprise attack on towns and a music festival in southern Israel on a religious holiday. They massacred 1,200 Jewish civilians, more than have been killed in a single day since the Holocaust. In response to the brutality, the Israeli military began dropping more bombs on Gaza ― one of the most densely populated places on Earth and where children make up nearly half the population.
As Israeli Prime Minister Benjamin Netanyahu promised to wage a prolonged war that would “change the Middle East” ― stoking concerns of a wider conflict like the 1973 Yom Kippur War that triggered an international oil crisis ― market speculators bid up the price of the region’s most prized commodity.
“Both Israel and Palestine really don’t have any oil production to speak of, so there’s not going to be any disruptions in oil flow or petroleum flows,” Robert Handfield, a professor of supply chain management at North Carolina State University, said by phone Friday. ”But there’s worry about the broader impact of this war that could leak into and involve other countries in the Middle East that could disrupt these flows.”
After soaring in the wake of the Hamas attack, prices ratcheted back down midweek before spiking again on Friday. Still, the national average price per gallon of gasoline, which is made primarily from oil, fell 12 cents this week to $3.64, data from the American Automobile Association show.
“As long as this war does not spread to include more countries in the region, the effect on the oil market will remain muted,” Andrew Gross, a spokesperson for AAA, said in a statement.
But the federal Energy Information Administration this month adjusted its forecast for next year’s supplies, warning that the price of Brent crude could climb to $95 per barrel, a nearly 8% spike. The research agency predicted that U.S. inventories of crude would decrease by nearly 3% in 2024 compared to its previous outlook.
Despite operating at nearly 86% capacity, U.S. refineries went through an average of 15.2 million barrels per day in the week ended Oct. 6, a decrease of 399,000 barrels per day from the previous week’s average, according to Energy Information Administration data. U.S. imports of crude, meanwhile, increased over the past month and picked up pace last week.
The Energy Information Administration expects the price of heating homes with gas, propane and electricity to decrease this winter compared to last year. But fueling residential oil furnaces this winter will likely be more expensive, a problem for Americans living in the densely populated Northeast, where oil is still widely used for heating and where the El Niño weather patterns are forecast to bring more snow this year.
On Thursday, the U.S. slapped sanctions on two shipping companies accused of violating the oil price cap the Group of 7 rich democracies ― Canada, France, Germany, Italy, Japan, the United Kingdom and the U.S. ― imposed on sales of Russian oil as part of the West’s effort to clamp down on President Vladimir Putin’s war machine. It was the first time penalties were levied on companies for violating the cap.
As the Biden administration looked to isolate Russia and curb how much money Moscow adds to its war chest from selling oil, the White House relaxed its enforcement of sanctions on Iran. The move allowed Tehran to resume its historical role as one of the world’s top producers of crude in a bid to lower prices as the U.S. pursued new diplomatic talks with Hamas’ chief backer. By August, the Organization of Petroleum Exporting Countries said that Iran had regained its position as the 13-nation cartel’s No. 3 producer.
But in retaliation for Tehran’s support of Hamas, the U.S. and Qatar, which frequently functions as a diplomatic middleman in the region, agreed Thursday to halt payments on a deal to pay Iran $6 billion in exchange for releasing American prisoners. Under pressure to go further, the Biden administration is expected to once again tighten sanctions, reducing how much Iranian oil makes it to the global market.
Oil supplies were already constrained in part due to Saudi Arabia, the No. 2 producer behind the U.S., voluntarily cutting back on drilling in a bid to raise how much money it earns from exports, despite the Biden administration urging the country to up supplies.
In some countries, like Colombia and the Netherlands, the volatility in oil prices and the urgent need to slash fossil fuel usage to avoid worsening climate change have spurred policymakers to hasten to shift away from crude, restricting new drilling and promoting renewable and nuclear power. In places like the U.S., Canada and Brazil, however, governments have coupled historic efforts to promote clean energy with an increase in fossil fuel production.
“Oil prices were going up before this conflict because there’s a lot of demand right now for oil as economies are starting to come back online,” Handfield said. “I think this is just a blip in terms of a market reaction.”