Oil prices spike following escalating conflict in Middle East

By Duygu Alhan and Sibel Morrow

Oil prices increased during early Asian trade on Monday over intensified supply concerns caused by the conflict between Palestine and Israel, while data indicating higher demand in China, the world’s largest oil importer, reinforced the price upticks.

International benchmark crude Brent traded at $86.89 per barrel at 12.08 a.m. local time (0908 GMT), a 2.7% gain from the closing price of $84.58 a barrel in the previous trading session on Friday.

The American benchmark West Texas Intermediate (WTI) traded at the same time at $85.31 per barrel, up 3% from Friday's close of $82.79 per barrel.

Following the latest crisis between Palestine and Israel, prices skyrocketed, fueling fears of supply shortages. Iran's public backing for Palestine, as well as the possible suspension of discussions between Iran and Western powers on removing US sanctions on Iranian oil exports that have been ongoing since 2018, have all contributed to the price rises.

Iran, the US, China, Russia, France, the UK, Germany, and the EU signed the Iran nuclear deal in 2015. Under the agreement, Tehran committed to limiting its nuclear activity for civilian purposes, and in return, world powers agreed to drop their economic sanctions against Iran.

If the deal is renegotiated successfully, Iran will be able to export oil again, which will ease market concerns over tight supply.

Meanwhile, prices were positively impacted by data showing that oil demand in China rose by 4.1% relative to pre-pandemic levels in 2019 as around 826 million attended the country’s eight-day “Golden Week” holiday, according to China’s Ministry of Culture and Tourism.

Oil prices fell by around 9% last week, recording their steepest weekly decline of the last seven months, triggered by a strong US dollar, the build in US gasoline stockpiles, Russia’s decision to ease its diesel export ban, and the resumption of oil flow through the Iraq-Türkiye crude oil pipeline.

The price declines came despite OPEC’s decision to sustain output cuts in Saudi Arabia and Russia until the end of the year and the group’s confirmation of its supply cuts of 3.6 million barrels.

However, following data indicating a drop in oil consumption in the US with the end of the summer, prices retreated by around 5% on Thursday.