Oil prices started the week lower following their biggest gain since January 2023, as traders closely monitored escalating tensions in the Middle East and uncertainty surrounding global demand, particularly from China. Brent crude hovered near $78 per barrel after soaring 8.4% last week, while West Texas Intermediate (WTI) crude traded at $74.42 per barrel.
Market attention is focused on potential Israeli retaliation against Iran following a missile attack, though President Joe Biden urged against targeting Iran’s oil fields. Biden hinted at considering alternative actions but didn’t specify when Israel might respond.
The possibility of an all-out war in the Middle East has heightened concerns, with Iran’s oil production, now nearing full capacity, potentially vulnerable to future attacks. Despite this, the market remains uncertain, with ample supply and questions about global demand, particularly from China, hanging over prices.
Tensions escalated further over the weekend as Israel continued airstrikes in Gaza and limited ground maneuvers in Lebanon, keeping the region on edge. Any hit to Iran’s energy infrastructure could push Brent prices above $80 per barrel, according to market strategist Yeap Jun Rong.
Options markets are signaling a bullish outlook, with implied volatility for Brent crude reaching its highest levels in nearly a year. Goldman Sachs predicts Brent could surge into the $90 range if Iran’s oil supply is disrupted, while JPMorgan suggests targeting Iran’s energy infrastructure may not be the most favorable action.
Adding to market dynamics, Saudi Arabia raised oil prices for Asian buyers but lowered them for the U.S. and European markets. Meanwhile, China’s top economic planner is expected to announce policies aimed at boosting growth, raising expectations for increased public spending as part of a stimulus package.
