Oil rose slightly on Wednesday as investors grappled with the possibility of supply disruptions due to turmoil in the Middle East.
Brent crude rose 25 cents, or 0.3%, to $87.90 a barrel by 05:50 GMT. West Texas Intermediate (WTI) crude oil rose 24 cents or 0.3% to $86.21 a barrel.
Brent and WTI surged more than $3.50 on Monday as the military clashes raised fears that it could spread beyond Gaza, but settled lower in Tuesday’s session.
Even though Israel produces very little crude oil, markets are concerned that conflict could spread and disrupt supplies in the Middle East, worsening the deficit expected for the rest of the year.
There is a risk that this situation will escalate further, especially in the event of Iran’s intervention. According to this scenario, if US sanctions against Iranian oil are implemented more strongly, the oil market will tighten further.
While US officials point to Iran as complicit in Hamas’ attack on Israel, reliable evidence of Iran’s role has yet to emerge.
Political risks prevent crude oil prices from falling further.
Israel says it destroyed parts of Gaza in retaliation for Hamas attacks. Keeping markets on edge, powerful Iraqi and Yemeni armed groups have threatened to target US interests with missiles and drones if Washington intervenes to support Israel.
Top oil exporter Saudi Arabia said on Tuesday it was working with regional and international partners to prevent an escalation of the situation in Gaza and neighboring areas and reaffirmed its support for efforts to stabilize oil markets.
In a geopolitical context, crude oil may rise further towards the $90-100 per barrel range, but it is unlikely to rise above the $100 level due to the pessimistic global economic outlook.
The US dollar index fell to a two-week low of 105.78 as the market awaited the US Federal Reserve’s September policy meeting minutes to be released later on Wednesday. The weakening of the dollar makes crude oil cheaper for holders of other currencies, which could increase oil demand.
By the way, Many Fed officials have suggested in recent days that the US central bank does not need to raise borrowing costs further.
In a more positive sign for supply, Venezuela and the United States have made progress in talks that could lead to sanctions relief for Caracas by allowing at least one foreign oil company to buy Venezuelan crude under some conditions.