Oil prices rise on fears of Middle East conflict as Israel steps up attacks

By Gabrielle Ng and Katya Golubkova

SINGAPORE (Reuters) – Oil prices extended gains on Monday, supported by growing concerns about potential supply pressures from Middle East producers following increased Israeli attacks on Iran-backed forces in the region.

Brent crude futures for November delivery were up 51 cents, or 0.71 percent, at $72.49 a barrel as of 0330 GMT. That contract expires on Monday, and the more active contract for December delivery gained 50 cents, or 0.7 percent, to $72.04.

U.S. West Texas Intermediate crude futures added 43 cents, or 0.63 percent, to $68.61 a barrel.

Last week, Brent fell about 3 percent, while WTI fell about 5 percent, as concerns about demand grew after fiscal stimulus from China, the world’s second-largest economy and biggest oil importer, failed to they managed to calm market confidence.

However, prices on Monday were supported by the possibility of a widening Middle East conflict involving Iran, a key producer and member of the Organization of the Petroleum Exporting Countries (OPEC), after Israel stepped up its attacks on the Hezbollah and Houthi militant groups , which Iran supports.

While oversupply is a key concern for oil markets, markets generally fear an escalation of the Middle East crisis that could diminish supply from key producing regions, said Priyanka Sachdeva, senior market analyst at Phillip Nova.

Israel said it bombed Houthi targets in Yemen on Sunday, widening its standoff with Iran’s allies two days after Hezbollah leader Sayyed Hassan Nasrallah was killed in an escalating conflict in Lebanon.

US Defense Secretary Lloyd Austin has authorized the military to strengthen its presence in the Middle East, with the Pentagon saying on Sunday that if Iran, its partners or its proxies target US personnel or interests, Washington “will take all necessary steps to defend us . people”.

In the context of Israel’s decisive attack on Hezbollah, oil prices will continue to be driven by supply and demand dynamics, said Tony Sycamore, market analyst at IG.

With the upcoming end of OPEC+ voluntary supply cuts on Dec. 1, WTI could test 2021 lows in the range of $61-62 a barrel, he said.

“Furthermore, despite China’s recent shift, it is unclear whether this will translate into higher fuel demand given China’s progress in electrifying and decarbonizing its transportation sector,” Sycamore added.

Months later, markets will wait to hear from Federal Reserve Chairman Jerome Powell for clues on the pace of the central bank’s monetary easing, with seven other Fed policymakers due to speak this week, ANZ analysts said in -a note.

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Data on job openings and private employment are also needed, along with the ISM surveys of manufacturing and services.

With the Fed and other major central banks engaged in policy easing, some economic recovery could be just around the corner, Phillip Nova’s Sachdeva said.

“How well demand responds to the rate cut and how much Chinese demand recovers from the major stimulus injected last week will ultimately shape the dynamics of the oil market going forward,” she said.

(Reporting by Gabrielle Ng and Katya Golubkova; Editing by Christian Schmollinger and Jamie Freed)