Oil Prices Continue to Climb as Fears of a Major War in the Middle East Mount

Worry about oil supply disruption in the Middle East pushed Brent crude and West Texas Intermediate higher earlier today in Asian trade, as Israel continues to pound Lebanon after the killing of the Hezbollah leadership last week. It also struck targets in Yemen, signaling it was willing to expand the conflict.

“The recent escalation of attacks in the Middle East is increasing the likelihood of Iran being directly dragged into the conflict, putting a significant risk around supply disruptions at the OPEC producer,” ANZ analysts said, as quoted by Reuters.

Not everyone agrees, however, that it’s the latest in the Middle East that is feeding the rise in oil prices. “The oil market has become increasingly numb to developments in the Middle East,” Warren Patterson, head of commodities strategy at ING, told Bloomberg.

“The conflict has gone on for more than a year with no impact on oil output, while OPEC continues to sit on a large amount of spare capacity. Instead, support measures coming through from China appear to be what’s providing support.”

Last week, China’s government said it would introduce fresh stimulus measures in order to make sure the planned GDP growth target for the year is met. As part of these measures, the Chinese central bank said yesterday it would lower mortgage rates on existing loans to reverse the real estate slowdown that has plagued the economy this year.

Patterson is on alone in this take on the effect of Middle Eastern events on oil prices. RBC Capital Markets’ Helima Croft also recently told Bloomberg that current oil prices are not reflecting the prospect of a wider war in the Middle East. Croft said oil traders should be watching the war more closely as Iran may yet get “catalyzed” into entering the war directly in response to some Israeli move such as an incursion into Lebanon.

Source: oilprice.com