Oil prices rose by more than 5%! Israel wants to hit Iran's oil facilities? Biden: We're discussing

The situation in the Middle East has rapidly escalated in recent days, and the world is nervous about Israel's possible retaliation by Iran with a large-scale missile attack on Israel a few days ago. Asked if he would support Israel's attack on Iran's oil facilities, United States President Joe Biden said, "We are discussing this," media reported.

Analysts say Iran's production of more than 3 million barrels per day could have a significant global impact if there is a supply disruption, which is closely linked to the manner and scale of Israel's retaliation. As a result, WTI crude oil futures rose more than 5.69% on Thursday to a new daily high of $74.09 per barrel and closed up 5.15% at $73.71. Brent crude futures rose 4.98% to $77.58, rising above the 50-day moving average for the first time since July and the longest winning streak since August.

Analysts: Oil price movements depend on how Israel responds

Analysts believe that the oil market is not alert enough for an imminent major supply disruption. With Israel likely planning a retaliatory attack on Iran, which could target its oil infrastructure, the prospect could send shockwaves to bearish energy market participants.

Iran is the third-largest oil producer among the members of the Organization of the Petroleum Exporting Countries (OPEC). The supply of crude oil through the Strait of Hormuz accounts for one-fifth of global demand, and large quantities of liquefied natural gas are transported through the waterway. Saudi Arabia, Iraq, U.A.E., Kuwait and Qatar send goods through this key waterway. If Iran's oil infrastructure were targeted by Israel, global supply could be expected to be at risk of up to 4%.

Bjarne Schieldrop, chief commodity analyst at Sweden Bank SEB, told the media that the escalation in the Middle East could have a significant impact on the market.

"What if...... You really destroyed Iran's oil facilities and reduced exports by 2 million barrels, then the next question for the market is what will happen in the Strait of Hormuz? This, of course, would impose a significant risk premium on oil prices,"

"If Iran's facilities are destroyed, oil prices could easily break through $200."

Traders are concerned that the latest escalation of tensions could impact supply if energy facilities are attacked or supply routes blocked. Citi analyst Francesco Martoccia noted in a note on Wednesday that Israel's major blow to Iran's export capacity could reduce market supply by 1.5 million barrels per day. If Israel attacks small infrastructure such as downstream assets, it could lose between 300,000 and 450,000 barrels of production.

Analysts argue that these developments add another layer of uncertainty to the oil market, and the ultimate impact on the global oil supply and demand balance and prices depends on the extent to which Israel responds and whether it sees any actual disruption to Iran's oil industry.

Israel continues to be tough Biden: Discussions are underway on whether to support an attack on Iran's oil facilities

Israel Prime Minister Benjamin Netanyahu said on Tuesday that he would respond forcefully to Iran's missile attack and insisted that Tehran would pay for what it described as a "major mistake." Earlier, Iran fired more than 180 ballistic missiles at Israel, which Iran said hit some of Israel's military facilities.

On Thursday, during a visit to Qatar, Iran's President Massoud · Pezeshki said Iran "does not pursue war with Israel." However, he warned that Tehran would respond strongly to any further Israel actions.

And when asked whether he supported Israel's attack on Iran's oil facilities, United States President Joe Biden replied Thursday: "We are discussing this." But he also said he did not expect Israel's retaliation on Thursday. Biden said Wednesday that he did not support Israel's strike on Iran's nuclear facilities.

"It all depends on how the conflict escalates further, and I think Israel will retaliate after the latest Iran attack – probably in five days, just before the one-year anniversary on October 7," Schieldrop said. This will be ...... A weak attack like the one we saw in April, after which everything calmed down? Or will it be a more intense attack on military, potential nuclear and oil facilities? That's exactly what the market is worried about right now. ”

Referring to possible retaliation from Israel, Rabobank's Michael Many said on Wednesday that "Israel's list of targets is relatively short compared to Hamas, Allah and the Houthis," with oil and gas infrastructure being the most likely targets.

Rebecca Babin, Senior Energy Trader at CIBC Private Wealth, said:

"Energy infrastructure is now seen as a potential target, which is not entirely surprising to the market, but Biden's comments are bringing that possibility closer. There is some skepticism in the market about whether Israel will actually target oil facilities, mainly due to the Biden administration's desire to keep oil prices stable ahead of the upcoming elections. ”

Is the energy market too complacent? Bears can be squeezed

Energy analysts warn that despite heightened tensions in the Middle East, there is still a general bearish sentiment in the market. Previously, Wall Street institutions have expressed their long-term bearish views on oil prices.

Amrita Sen, founder and head of research at Energy Aspects, told the media on Thursday. "I do think that from an oil market perspective, the market is very complacent at the moment, and since 2019, when half of the capacity was shut down by a drone attack on a Saudi oil facility, geopolitical risks have not led to a loss of oil supply. That's why the market has become numb, and I think it's a little bit different this time. ”

Meanwhile, John Evans, an analyst at oil brokerage PVM, said in a research note released on Thursday that historically, oil prices have shown "very different and drastic reactions" to missile attacks and bombings in several countries in the Middle East.

"Needless to say, anything related to Israel will pull into the historical heat, but from an oil price perspective, the entry of the more influential Iran should be beneficial to the bulls." The expansion of the war and the damage it caused needs to be proven if market participants are to escape the widespread suspicions. ”

Analysts say any price rally could also be exacerbated by the extremely bearish attitude of the oil market ahead of today's event. Extended short positions mean that money managers and hedge funds must now close their positions quickly, or risk being passive when prices spike.

But analysts still believe that these gains could be limited in the long run, as market participants realize that OPEC members may resume supply in an emergency, after they had previously cut production.

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