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Oil prices are likely to rise on Monday in response to Iran’s attack on Israel this weekend, analysts said.
Further price movements could depend on how Israel and the West respond to the attack. Iran launched more on Saturday more than 300 drones and missiles, most of which were intercepted by Israeli air defenses. It marked the first direct attack from Iranian territory after years of proxy warfare.
“Oil prices could rise at the open, as this is the first time Iran has hit Israel from its territory,” Giovanni Staunovo, an analyst at UBS Group, said in a report. “How long the rebound lasts will also depend on the Israeli response.”
U.S. President Joe Biden, facing a potential voter backlash if gas prices rise during an election year, said he has called a meeting of leaders of major Group of Seven economies on Sunday to form a diplomatic response to the Iranian attack. Iran, which pumps more than 3 million barrels of oil a day, is OPEC’s third-largest oil producer after Saudi Arabia and Iraq.
Growing concerns that Iran may stage an attack in response to an attack on its embassy compound in Damascus last week have helped support oil prices. Global benchmark Brent crude (CO1:COM) hit $92.18 a barrel on Friday, its highest level since October, and settled at $90.45 a barrel. US West Texas Intermediate crude futures (CL1:COM) rose $0.64 a barrel to settle at $85.66 a barrel.
Maritime traffic
Energy traders will likely scrutinize tanker traffic through the Strait of Hormuz, passageway for about a fifth of the world’s oil supplies. Any attack on oil tankers could trigger a rise in oil prices.
“I think oil will open higher,” said Tina Fordham, founder and strategist at Fordham Global Foresight. “Signs that Iran wants to implement a soft blockade of the Strait of Hormuz are also worrying, as this means there are potential supply chain disruptions and higher oil prices. We have entered a dangerous period ahead of the US elections. “
A geopolitical risk premium in the Middle East is likely to persist longer, prolonging support for oil prices, Citigroup analyst Eric Lee said in an April 11 report.
A sustained increase in prices “in turn could stimulate policy reaction functions that limit the upside resulting from OPEC+ slowing strategic crude purchases by the United States and China, pushing oil back into the third quarter of 2024,” Lee said in the report.