Oil leaped higher after Iran called for an embargo against Israel by Muslim countries, following a deadly explosion at a Gaza hospital that raised the risk of wider hostilities in the Middle East.
(Bloomberg) — Oil leaped higher after Iran called for an embargo against Israel by Muslim countries, following a deadly explosion at a Gaza hospital that raised the risk of wider hostilities in the Middle East.
Brent futures rose as much as 3.5% to trade near $93 a barrel, before paring some of those gains. Iran’s foreign minister called for a full and immediate boycott of Israel by Muslim countries, including an oil embargo on the country.
While Israel’s oil imports are small in the context of global supply and little comes from the Middle East, the comments were significant in that they marked verbal escalation over the war between Israel and Hamas, which is considered a terrorist organization by the US and European Union.
It follows a blast at a hospital in Gaza City that killed hundreds. Leaders of Jordan, Egypt and the Palestinian Authority canceled a summit with US President Joe Biden, complicating his push to ensure the Israel-Hamas conflict doesn’t widen across the region. Biden arrived in Israel early Wednesday.
“Traders are watching closely for any sign the conflict is spilling over in ways that could have a big supply impact,” said Richard Bronze, an analyst at consultant Energy Aspects, adding that Israel mostly gets its oil from outside the Middle East and North Africa region. “But calls for an embargo will add to the comparisons to the 1970s crises that were already being discussed in the market, even if the impact is mostly symbolic for now”
The global oil market has been rocked by the Middle East crisis. Tehran, which supports Hamas, had already been warning of the scope for escalation. Traders had been on alert in case Israel opts to launch a ground offensive into Gaza, potentially igniting a broader conflict that may draw in Iran, a key crude supplier, and other states.
For now, though, oil price spikes are limited thanks to a relative abundance of spare capacity that could come online in the event of any disruption. There also continue to be concerns around the impact of any global growth slowdown on demand.
“Obviously there is some geopolitical premium that is kicking into the market,” said Jorge Leon, an analyst at consultant Rystad Energy. “One thing to bear in mind is that we have a lot of spare capacity in the market right now. You easily have 6 million barrels a day of spare capacity and that is acting as a limiting factor on the upside for prices.”
The increasingly global nature of the oil market gives Israel plenty of scope to overcome any embargo, although much of its supply comes from Kazakhstan and Azerbaijan, two majority Muslim nations. It also imports from West African producers.
Gaza authorities said the hospital blast that left hundreds dead was caused by an Israeli airstrike. Israel, meanwhile, pointed the finger at a failed missile from militant group Palestinian Islamic Jihad. President Joe Biden suggested the Israeli military was not responsible.
“The situation was already so dangerous that it merited an unplanned visit by POTUS,” said Paul Horsnell, head of commodities research at Standard Chartered. “Once a level of risk commensurate with that is reached, it’s perhaps hard to graduate the scale further.”
Beyond the region, crude got additional support Wednesday from data showing better-than-expected economic growth in China. The world’s largest oil importer also churned through a record 15.54 million barrels a day of crude in September on the back of strong demand.
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–With assistance from Serene Cheong, Yongchang Chin, Julian Lee, Sherry Su and Patrick Sykes.
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