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Oil prices see biggest weekly surge in a year as middle east tensions escalate

October 5, 2024

The price of oil has surged this week, marking its largest weekly gain in over a year as investors react to escalating tensions in the Middle East.

Brent crude, the international benchmark, rose 0.8% on Friday to reach $78.24, capping a 9% weekly increase and approaching the $80 mark last seen in August. West Texas Intermediate (WTI), another key benchmark, climbed 0.75% to $74.26.

The sharp rise in oil prices follows heightened conflict between Israel and Hezbollah, which is inching closer to full-scale war. Iran’s military has fired nearly 200 ballistic missiles at Israel, the most significant direct attack to date, raising fears of a broader regional conflict. In response, the United States and Israel have warned Iran of “severe consequences,” and discussions are reportedly underway about potential retaliatory strikes on Iranian oil facilities.

Oil prices had been trending lower earlier in the month due to concerns over weak global demand and a potential increase in supply. However, the latest developments in the Middle East have reignited market fears over supply disruptions, driving prices higher.

Shares of major oil companies have benefitted from the rally. Shell’s stock increased by 0.5% to £25.77½, while BP rose by 1.9% to 416¾p, with both companies seeing gains of over 5% throughout the week.

Before the escalation, oil had been trading near a two-week low, driven by expectations of weak demand, particularly from China, and a decision by Opec to gradually bring back production. The cartel has agreed to increase daily output by 180,000 barrels starting in December, after delaying production cuts by two months.

Market analysts have revised their forecasts for Brent crude, projecting it to average $81.52 per barrel this year, down from earlier expectations of $82.86. Both Opec and the International Energy Agency (IEA) have also downgraded their outlooks for global oil demand. Opec now expects demand to grow by 2.03 million barrels per day this year, slightly down from previous estimates, while the IEA has revised its forecast to 900,000 barrels per day, reflecting weaker demand growth.

The surge in oil prices has triggered inflation concerns, pushing the yield on 10-year UK government bonds to 4.07%, its highest level since July. Gold, a traditional safe haven during times of instability, has also seen a price increase, rising by $2.86 to $2,657.86 per troy ounce.

Meanwhile, the rise in oil prices has negatively impacted the airline industry. Shares of London-listed airlines such as Wizz Air and easyJet fell sharply, with Wizz Air dropping 3.7% to £12.74 and easyJet falling by 2.6% to 493p.

The ongoing uncertainty in the Middle East continues to drive volatility in oil markets, with investors closely watching for further developments that could impact global supply and demand.