Escalating Middle East conflict pushes up oil prices – Commerzbank

Oil prices rose 4% (Brent) and 4.8% (WTI) last week. For Brent, it was the strongest weekly increase since April, for WTI since February. However, this only partially reversed the heavy losses seen in early September, notes Commerzbank commodity analyst Carsten Fritsch.

There is no reason for a significant widening of the risk premium

“Both Brent and WTI are still trading below the levels seen at the end of August. The latest escalation in the Middle East conflict is driving up prices. Over the weekend, there were heavy clashes between Israel and the Shia terrorist militia Hezbollah in southern Lebanon. The trigger was the killing of scores of Hezbollah members by targeted explosions of communications devices last week, for which Israel is blamed.”

“The conflict in the Middle East has been going on for almost a year without significant supply disruptions in the oil market. Attacks by Houthi rebels in the Red Sea on merchant and oil vessels have only led to a realignment of shipping routes and shipping delays. Oil producers do not remain directly involved in the conflict. This only applies indirectly to Iran, which supports Yemen’s Houthi rebels, Hamas and Hezbollah.”

“However, Iran’s oil supplies have increased further in recent months, despite US sanctions still in place. The conflict between Israel and Hezbollah is unlikely to lead to supply disruptions in the oil market, unless further escalation results in an Israeli attack on Iran’s oil infrastructure or Iran blocks passage through the Strait of Hormuz. We still consider the risk of this to be very low. In our view, there is a face-off with the price of oil and a further increase in the price.”