The scare projected for the oil trade due to the war between Israel and the Hamas group caused oil prices to rise for the second consecutive week, although the absence of any real disruption in barrels leaving the Middle East is also giving rise to permanent volatility.
Both U.S. crude oil and Brent, its UK counterpart, jumped nearly 2% at one point on Friday before giving it all back and ending the day in the negative. However, gains in recent sessions kept both benchmark indices in the negative for the week.
The West Texas Intermediate crude oil, traded in New York, or WTI, for December delivery, closed Friday’s trading down 29 cents, or 0.3%, at $88.08 per barrel. December WTI had previously hit a session high of $89.85. For the week, the U.S. oil benchmark rose 2%, adding to the previous week’s gain of about 6%.
London-traded Brent crude, for the most active December contract, ended Wednesday’s session at $92.16, a drop of 22 cents, or 0.2%. For the week, the global benchmark crude oil posted a gain of 1.4%, following a 7.5% gain from the previous week.
Many on Wall Street seem to think that oil prices should be higher anyway due to the relative proximity of the conflict in Gaza with some of the largest oil producers such as Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait.
Although Israel and Palestine hardly register on the global oil trade, the Strait of Hormuz, which runs through them, is a crucial chokepoint for the movement of crude oil, where one-fifth of all oil passes through its waters.
Furthermore, the almost daily saber-rattling attacks against Israel by the declared supporter of Hamas and the fifth-largest oil producer, Iran, and concerns about retaliation against Tehran by the Israelis and their main ally, the United States, have heightened concerns that something unpleasant may happen soon.
“The possibility that the war between Israel and Gaza becomes more widespread is making investors nervous and adding a significant risk premium to oil prices at a time when the market is already extremely tight,” said Ed Moya, an analyst at the online trading platform OANDA.
“Traders are cautious about weekend events triggering a shock movement in prices at the opening, which likely explains the movements we are seeing today,” said Moya, referring to the Friday highs, which occurred after the mid-week explosion at a Gaza hospital that killed hundreds of people.
However, some oil traders see the conflict for what it is—a significant political event that, so far, has shown no demonstrable risk to the oil trade.
