Oil prices have witnessed a significant surge, marking the largest weekly gain in a year.
- The price increase is driven by escalating conflict between Israel and Hezbollah, raising fears of a broader regional conflict.
- Iran’s launch of ballistic missiles at Israel has heightened tensions, leading to potential retaliatory threats.
- Major oil companies, including Shell and BP, have seen stock gains as prices rise.
- The situation continues to cause volatility in the market, affecting industries such as airlines.
Oil prices have surged significantly, recording the largest weekly gain in a year. The international benchmark, Brent crude, rose 0.8% on Friday to reach $78.24, nearing the $80 mark last seen in August. Similarly, West Texas Intermediate climbed 0.75% to $74.26, driven by escalating tensions in the Middle East.
The recent conflict between Israel and Hezbollah has been a significant catalyst for the rise in oil prices. As tensions escalate, the fear of a broader regional conflict has intensified. Iran’s military activity, particularly the launch of nearly 200 ballistic missiles at Israel, represents the most direct attack to date, escalating the situation further.
In response to Iran’s actions, both the United States and Israel have issued stern warnings of severe consequences. Discussions regarding potential retaliatory strikes on Iranian oil facilities are reportedly underway, further feeding market anxiety over possible supply disruptions.
Earlier in the month, oil prices were on a downward trend due to concerns over weak global demand and potential supply increases. The recent developments in the Middle East, however, have reversed this trend, propelling prices upward.
This surge has benefitted major oil companies. Shell’s stock experienced a 0.5% rise to £25.77½, while BP’s shares increased by 1.9% to 416¾p. Both companies recorded gains exceeding 5% over the week, reflecting the market’s bullish response to the price rallies.
Prior to the escalation, oil was trading near a two-week low, affected by low demand expectations, especially from China, and OPEC’s decision to gradually resume production. OPEC has announced an increase in daily output by 180,000 barrels starting December, following a delay in production cuts.
The current market dynamics have prompted analysts to revise their forecasts for Brent crude, now expected to average $81.52 per barrel this year, a decline from earlier projections of $82.86. Both OPEC and the International Energy Agency have reduced their global oil demand forecasts, with OPEC anticipating a growth of 2.03 million barrels per day, slightly down from previous estimates. The IEA projects demand growth at 900,000 barrels per day, indicating a sluggish demand increase.
The inflationary impact of the rising oil prices is evident, with the yield on 10-year UK government bonds climbing to 4.07%, the highest since July. Gold prices have also risen, underscoring its status as a safe haven in times of instability.
Industries beyond oil have felt the ripples of this price surge. The airline sector, in particular, has been negatively impacted, with shares of airlines like Wizz Air and easyJet seeing a decline. Wizz Air’s shares dropped by 3.7%, while easyJet fell by 2.6%, indicating the broader economic implications of the ongoing volatility in oil prices.
The escalating tensions in the Middle East continue to drive market volatility, with significant repercussions across global economic sectors.
