Oil Prices Rise Due to Geopolitical Tensions Between Israel and Iran

Oil prices continued their upward trend on Wednesday after Israel announced retaliation for the Iranian attack. These developments are fueling fears of potential supply disruptions in the region. West Texas Intermediate (WTI) climbed by more than 2% at midday, surpassing the $71 per barrel mark. The international benchmark price Brent also rose by about 2%, trading above $74. The recent price increases followed a brief 5% jump in the previous session when Iran launched around 200 ballistic missiles in response to Israeli ground attacks in southern Lebanon. These attacks targeted Iranian-backed militias. Dennis Kissler, Senior Vice President for Trading at BOK Financial, stated in a note to his clients on Wednesday: “Crude oil is trading significantly higher as substantial shorts by funds are still being covered amidst escalating geopolitical issues with Israel now vowing retaliation against Iran.” Reports indicate that Israeli retaliation could also include strikes on Iranian oil production facilities. Iran produces about 3 million barrels of oil daily. Goldman Sachs analysts additionally warned of further risks from potential additional declines in oil flows in the Red Sea, which has repeatedly been the site of rebel attacks this year due to counterattacks in the Israel-Hamas conflict. The S&P 500 Energy Select ETF (XLE) also continued its gains on Wednesday, rising by more than 2% in the previous session. Prior to the recent geopolitical price surge, oil prices had been declining due to growing supply concerns and weak demand. Last week, the futures market faced a setback when it was reported that OPEC+ leader Saudi Arabia is determined to end voluntary production cuts later this year, even if it leads to lower crude oil prices. The Organization of Petroleum Exporting Countries and its production allies have reduced their output since 2022. Despite the group's assurances, some members have exceeded their quotas this year. Ed Hirs, Senior Fellow at the University of Houston, told Yahoo Finance: “The market has been sold off in recent months as it became very evident that OPEC+ members have been cheating on their quotas.” Since the beginning of the year, WTI has risen by more than 2%, while Brent has gained over 1%.