MARKET NEWS

Oil (BZ=F, CL=F)

Oil prices jumped during a volatile trading session amid mounting concerns that Iran could target regional energy infrastructure or shipping lanes, particularly the strategically vital Strait of Hormuz

Brent crude futures gained 0.9% to $73.92 a barrel at the time of writing, while West Texas Intermediate futures went up 1.5% to $72.83 a barrel, adding to oil’s 7% surge on Friday.

The conflict in the Middle East flared on Friday after Israeli forces struck Iranian nuclear facilities and missile sites, raising the spectre of a broader regional confrontation.

Lazard Geopolitical Advisory (LGA) warned that a temporary disruption of the Strait could have severe market consequences.

“A temporary disruption of the Strait of Hormuz, a key transit chokepoint for 30% of seaborne oil and 20% of LNG, could push oil prices upwards of $120 per barrel and would likely require US direct involvement to secure safe passage for energy flows,” the advisory firm said in a note.

Even in the absence of a formal closure, LGA cautioned that “oil markets will see continued volatility as the risk of a disruption evolves.”“The conflict between Iran and Israel is still fresh and brewing, and investor sentiments may still be holding on to the 'war risks',” said Priyanka Sachdeva, senior analyst at Phillip Nova. “Added volatility and caution ahead of the Fed policy decision are further ensuring higher-paced price reactions in oil.”

Analysts at ING noted that while a loss of Iranian supply could significantly tighten balances in the months ahead, global producers may have the capacity to respond.

“The loss of Iranian oil supply would wipe out the surplus that was expected in the fourth quarter of this year,” they wrote. “However, OPEC sits on 5m b/d of spare production capacity, and so any supply disruptions could prompt OPEC to bring this supply back onto the market quicker than expected.”