Global energy prices are finishing the week the way they started — shooting higher as a cocktail of risks to supply have put investors on edge.
The price of Brent crude, the global oil benchmark, rose more than 4% Friday to trade at nearly $90 a barrel. West Texas Intermediate crude oil futures, the US benchmark, jumped 4.2% to $86 a barrel.
The main driver, according to Edward Moya, a senior market analyst at Oanda, is the unfolding conflict in Israel, and fears that it could spill over into the wider oil-rich Middle East region.
“The oil market is very sensitive to developments with the Israel-Hamas war,” he told CNN. “There are fears that, even as we see US production hit record levels, we could see a major shock to supplies in the near future.”
Analysts told CNN earlier this week that the war — sparked by a deadly assault by Hamas militants over the weekend — had made investors wary of a potential escalation that could embroil Iran.
Israel has long accused Iran of engaging in a form of proxy war by backing groups — including Hamas — that have launched attacks against it. Tehran has denied involvement in the weekend’s attacks.
But if a clear link to Iran emerges, analysts said, some kind of an intervention by the United States cannot be ruled out. That would likely entail tighter enforcement of existing sanctions on Iran’s oil exports.
Israel has warned 1.1 million people in Hamas-controlled Gaza to move south, and has called up 300,000 reservists ahead of a potential ground invasion. The Israel Defense Forces have also sent more troops to the country’s northern border with Lebanon to counter any potential attack by militants of Hezbollah, another group Iran has backed.
“Difficult to assess how an escalation will unfold. I think that what’s really driving the fears is a direct conflict with Iran, and [those fears] seem to grow by the day,” Moya said.
Brent is on course to finish the week 1.7% higher, a notable turnaround after it fell 11.3% last week, logging its biggest weekly drop since March.
Price rises this week put Brent back on course to top $90 a barrel, a level it last breached in early September following months of strengthening mainly on the back of production cuts by Saudi Arabia and Russia.
“Geopolitical situations such as these can change direction at short notice and have the ability to rattle markets and energy prices in a big way. Investors are wary of the unknown,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, wrote in a note Friday.
New US measures, unveiled Thursday, aimed at making it harder for Russia to skirt a cap on the price of its oil set by the Group of Seven nations may also be driving oil prices higher as the effort could reduce supply.