Oil rally continues
Crude oil was firmer again this morning as traders price in the escalation in hostilities across the Middle East. This marks the fourth successive positive session across oil markets as the tit-for-tat exchanges between Lebanon and Israel continue. These were compounded by Iran’s direct involvement through another missile attack on Israel, and comments from US President Biden saying his administration is in discussions with Israel over possible attacks on Iranian oil facilities. Front-month WTI is up around 12% from lows hit on Tuesday morning. Analysts are busy debating if this move fully prices in the danger of supply disruption should there be an attack on Iranian crude hubs. Probably not, as many traders will continue to look ahead and consider an expected drop in demand growth next year. As for the short-term, traders have to calculate the odds of the likelihood, not just of an attack, but also the likely scale, as well as the length of any disruption caused. Should there be an attack, would it be a warning, or would it result in complete destruction of Iran’s facilities? Everything is made more uncertain with the coming weekend.
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