On Tuesday, U.S. crude oil prices experienced an increase of over 2%, following a session where traders evaluated the potential for further escalation in the Middle East after a missile attack by Iran on Israel.
Helima Croft, the head of global commodity strategy at RBC Capital Markets, mentioned during an interview with CNBC’s "The Exchange" that there has been a significant degree of complacency regarding the ongoing war. According to Croft, traders have generally dismissed the risk of oil supply disruptions arising from the tensions in the Middle East.
Croft raised concerns about whether Israel might retaliate by targeting Iran’s nuclear facilities or oil infrastructure following the attack. She noted that Iran’s current oil production is at a five-year high, exceeding 3 million barrels per day. In light of this situation, Croft emphasized the need to consider scenarios where Iranian oil supplies could be jeopardized.
Tuesday’s closing energy prices were as follows:
- West Texas Intermediate (WTI) November contract closed at $69.83 per barrel, up $1.66 or 2.44%. Year-to-date, U.S. crude has declined by more than 2%.
- Brent December contract ended at $73.56 per barrel, rising $1.86 or 2.59%. The global benchmark has fallen more than 4% year-to-date.
- RBOB Gasoline November contract reached $1.9666 per gallon, up 1.63%. Gasoline has decreased by more than 6% year-to-date.
- Natural Gas November contract concluded at $2.896 per thousand cubic feet, down 0.92%. However, natural gas has gained over 15% year-to-date.
The Israel Defense Forces reported approximately 180 missiles fired from Iran toward Israel, with most being intercepted. However, several strikes were confirmed, as communicated by an Israeli security official to NBC News. The IDF is currently assessing the situation and has not reported any casualties, stated military spokesman Daniel Hagari, who also noted that the attack will have consequences. A senior White House official warned that the U.S. would support Israel and indicated that Iran would face severe repercussions for the attack.
Tensions have significantly escalated in the Middle East over the past week. Israel has launched airstrikes against the Iran-backed militia Hezbollah, resulting in the death of the group’s leader, Hassan Nasrallah. Additionally, Israel deployed ground forces into southern Lebanon on Tuesday.
Geopolitical and oil market analysts have continuously warned throughout the year that an Israeli move into Lebanon could trigger a regional conflict with Iran, heightening the risk of crude supply disruptions. Bob McNally, president of Rapidan Energy, remarked that the impact on the oil market would hinge on the "scope and damage" of any Iranian attack and Israel’s subsequent response.
In April, tensions between Iran and Israel nearly escalated into a full-scale conflict when Iran launched hundreds of ballistic missiles and drones against Israel following Israeli strikes on an Iranian diplomatic compound in Syria. However, the U.S., Israel, and other allies managed to deflect the Iranian attack, allowing for a limited Israeli retaliatory strike that did not provoke further escalation.
McNally suggested that if a similar pattern of failed Iranian attacks and restrained Israeli responses repeats, the crude risk premium might quickly dissipate. However, he cautioned that Israel’s increasingly aggressive stance—akin to a "three eyes for an eye" policy—could lead to a more rapid and sustained increase in geopolitical risk premiums if Iran’s attacks cause significant damage.
