International oil prices continue to rise due to escalating conflict between Israel and Iran, which has heightened market concerns over supply issues. Traders are also preparing for market volatility.
At the beginning of this week, oil prices continued to rise following the mutual attacks between Israel and Iran over the weekend. Oil Analysts are closely monitoring the further upward trend in oil prices, as the escalating situation increases the risks to oil supply in the Middle East. $Brent Last Day Financial Futures (AUG5) (BZmain.US)$Prices had once risen by 5.5%, but the increase has since narrowed, currently sitting above $76 per barrel. And$Crude Oil Futures (AUG5) (CLmain.US)$the price is close to $75 per barrel.
In a series of attacks launched by Israel on Saturday, a gas processing facility connected to Iran's largest Henry Hub Natural Gas field - the South Pars field was temporarily destroyed, and fuel storage tanks were attacked as part of its actions against Iran's nuclear program.
Although the attacks primarily targeted Iran's domestic energy system rather than its export business to the international market, oil traders and Analysts are preparing for the potential of more turmoil in the future, as oil prices experienced their largest increase in three years last Friday. Oil prices rose more than 13% last Friday, but the increase has since narrowed. Despite the sanctions imposed by the United States, Iran remains the third-largest producer in OPEC.
Helima Croft, the Global Commodity Strategy Director at Royal Bank of Canada's Capital Markets and a former CIA Analyst, stated in a report on Friday that if there is a disruption in oil supply, Trump is likely to call for the Saudi-led OPEC+ alliance to utilize its vast idle capacity. However, it remains unclear whether OPEC can compensate for the significant and ongoing oil supply disruptions from Iran, whose daily oil production is about 3.4 million barrels.
This move alone could make the energy infrastructure of Saudi Arabia and the UAE a target for attacks. Following Saudi support for Trump's repression policy against Iran during his first term, Saudi Arabia's crucial oil processing facility in Abqaiq was destroyed by Houthi militants in 2019.
Clay Seigle, a senior researcher at the Center for Strategic and International Studies in Washington, D.C., stated, "OPEC can activate some idle capacity to offset the decrease in Iranian oil production. However, it would be politically tricky for Saudi Arabia and the UAE to achieve this at the expense of Iran."
More importantly, the biggest concern in the oil market is focused on the Strait of Hormuz. The Houthi militants, allies of Yemen, have been harassing ships in the region, while Iran has previously threatened to block the Strait of Hormuz, a crucial transit route in the Persian Gulf. Nevertheless, Iran has never blocked this key maritime passage. Oil-producing countries in the Middle East supply about one-fifth of the world's daily oil output through this narrow waterway, and if Iran attempts to block it, oil prices could soar even higher. JPMorgan predicts that closing the Strait of Hormuz could push international oil prices to $130 per barrel. An increase in oil prices would amplify global inflationary pressures.
Richard Bronze, head of the geopolitical department at Energy Aspects, stated, "Now that this threshold has been crossed, people will begin to question whether Israel will further strike Iranian energy facilities. We seem to be in a cycle of escalating conflict."
Widely monitored market indicators show that concerns about supply risks are increasing, while worries about long-term conflicts in the Middle East are also rising. The spread between two nearby December contracts in this grade, which is a key indicator of long-term supply-demand balance, has risen by as much as $1.29 per barrel, reaching $3.48.
Bob McNally, president and founder of Rapidan Energy Advisers and a former White House energy official, pointed out, "This escalating conflict, which may last for a long time, and its extension into the economic realm causing civilian casualties, should prompt us to add some risk premium to crude oil prices early this week."
The options market has also released warning signals, as volatility remains high, with the skew in the Asian trading session still favoring bullish Options Trading. Volume is also significantly above usual levels.
Last week, overseas investors bought a large amount of call Options on Crude Oil, betting that oil prices would rise above $80 in the future. Data from the CME Group shows that on June 13, the volume of call Options expiring in August 2025 with a strike price of $80 for WTI Crude Oil reached 0.0334 million contracts, setting a record for the highest single-day volume since January this year, while the total volume in the Crude Oil Options market that day soared to 0.681 million contracts. The significant Inflow of funds indicates that the market is actively pricing the potential impact on Crude Oil supply from the situation in the Middle East, and the $80 oil price is gradually becoming a new focal point for investors.
Currently, the fact that major oil facilities have not been damaged in this turmoil may bring some comfort to the market. Vandana Hari, the founder of Singaporean energy consultancy Vanda Insights, stated: 'To change this expectation and push the risk premium of crude oil even higher, we may need to see signs of escalating warfare - that is, a wider scope of destruction and a higher number of civilian casualties.'
The International Energy Agency, headquartered in Paris, stated that despite a slowdown in fuel demand and an increase in OPEC+ production recently, the global oil market remains well-supplied. The agency also indicated that it would use emergency reserves if necessary.
On Sunday, President Trump posted on a social media platform that these two conflicting countries should and will reach a peace agreement. Prior to the attack on Israel, Trump expressed his dissatisfaction with rising oil prices. Iran also canceled the nuclear negotiations planned with the U.S. in Oman on Sunday.
Editor/melody
