Oil prices rose sharply on Friday, sending international benchmark Brent crude above $115 a barrel for the first time since May. The latest crisis in the Middle East has left energy markets deeply worried that global supplies could soon be hit.
Brent crude futures rose 2.5% to $115.99 a barrel. This push puts the contract on track to end the week with gains of more than 5%. In the United States, West Texas Intermediate (WTI) crude futures rose 3.0% to $102.46 a barrel, on track for a weekly gain of more than 1%.
Market analysts at ING pointed out that this price increase is not really about today's fundamental supply numbers. Instead, it's all about fear. Traders are worried that fresh fighting in the Persian Gulf could disrupt oil shipments that have so far managed to remain surprisingly stable.
Increasing geopolitical tension in the Persian Gulf
News reports this week revealed that the United States and Israel are considering plans to launch new strikes against Iran after the US midterm elections are over in November. According to the Wall Street Journal, Tehran has already warned that it would retaliate against any new attacks, possibly by targeting economic sites and civilian infrastructure.
Meanwhile, Yemen-based Houthi fighters have continued their attacks on locations inside Saudi Arabia. The situation became so tense on Thursday that state oil company Saudi Aramco asked employees to leave its main headquarters in Dhahran, located near Bahrain.
Energy traders are worried that this wave of violence could wipe out the recent surge in crude exports from the Gulf. Earlier this week, the Wall Street Journal reported tanker tracking data showing that more oil was actually flowing through the Gulf than before the joint US and Israeli action against Iran began in late February.
Pipeline disruption in North Africa
Supply problems are not limited to the Gulf. In Libya, an oil pipeline valve connecting the Hamada and Tahara oil fields to the Zawiya export terminal was closed. The head of Libya's National Oil Corporation confirmed that the closure had cut daily output at both fields.
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Key Takeaways for Crude Oil Traders and Energy Markets
- Geopolitical risk motivates the tape:Crude oil prices are being separated from everyday inventory numbers by traders due to the threat of military attacks in the Gulf.
- Severe resistance tested:Brent's break above $115 is its highest level in several months, turning technical resistance into short-term support.
- Multiple Constraints:Amid the Libyan pipeline shutdown and security risks near Saudi Aramco facilities, physical supplies are coming in short supply from multiple directions.