Oil prices continued their upward trajectory on Thursday, with Brent crude nearing $81.39 per barrel after a 3.8% surge the previous day. West Texas Intermediate (WTI) crude followed suit, reaching $78.43 per barrel, marking its largest daily gain since October.
The spike in oil prices comes on the heels of escalating geopolitical tensions in the Middle East. Reports from the New York Times indicate that Iran’s Supreme Leader, Ayatollah Ali Khamenei, ordered a direct strike on Israel. This action followed accusations from Iran that Israel was behind the assassination of Hamas political leader Ismail Haniyeh in Tehran, as well as the killing of a senior Hezbollah figure in Beirut, according to Bloomberg.
As with other periods of geopolitical instability, the oil options market has seen heightened activity. Wednesday witnessed the highest call volumes since April, with traders now favoring bullish contracts, even paying a premium over bearish options. This trend underscores the market’s growing concern about the potential for supply disruptions.
The timing of these events is critical, as they precede a review meeting of key members of the Organization of the Petroleum Exporting Countries (OPEC) and its allies. While the upcoming session is expected to be routine, with no significant changes anticipated in production plans for the fourth quarter, the unfolding geopolitical situation could influence future decisions.
Wael Sawan, Chief Executive Officer of Shell Plc, highlighted the uncertainty in the market, stating, “The biggest determinant of where prices might go is a combination of geopolitics, but critically OPEC’s decision in the coming weeks around the pace at which it unwinds its cuts, and of course the Chinese demand.” He noted that current physical markets are “well balanced, if anything slightly tight.”
Despite the recent monthly decline in crude prices driven by concerns over Chinese demand, oil remains elevated for the year. The bullish sentiment is fueled by Middle East tensions, OPEC+ supply cuts, and expectations of increased US demand amid potential monetary easing.
On Wednesday, Federal Reserve Chair Jerome Powell hinted at a possible interest rate cut as early as September, which could further bolster demand. Additionally, US crude inventories fell by 3.4 million barrels last week, marking the fifth consecutive weekly decline—the longest streak since January 2022. Stock levels at the Cushing hub also saw a reduction, signaling tightening supply.
As the geopolitical landscape remains volatile, all eyes will be on OPEC’s decisions and the ongoing developments in the Middle East, with potential implications for global oil markets.
