Oil Prices Climb Amid Middle East Tensions

Investing.com– Oil prices climbed strongly Monday, extending recent gains on fears of a wider Middle East war.

At 08:20 ET (12:20 GMT), Brent oil futures rose 1.7% to $79.39 a barrel, and West Texas Intermediate crude futures climbed 1.9% to $75.78 a barrel.

Both contracts rallied between 8% and 10% last week, as raised Middle East tensions were boosted by positive U.S. payroll data, which lifted hopes for greater resilience in the U.S. economy than initially feared.

Still, trading volumes were limited due to golden week holidays in China, with markets set to reopen on Tuesday.

Supply Disruptions in Focus on 1-Year Anniversary of Israel-Hamas War

Oil bulls built on bets of Middle East supply disruptions as the Israel-Hamas war showed few signs of cooling. Monday marked a year since the Hamas attack on Israel triggered renewed hostilities.

Reports indicated that Hezbollah rockets had hit Israel’s third-largest city, Haifa. Israel retaliated by striking Hezbollah targets in Lebanon and the Gaza Strip on Sunday, following a large-scale missile strike launched by Iran against Israel.

Israel is reportedly considering attacking Iran’s oil production facilities, a move that could disrupt oil supplies and drastically escalate the conflict.

Demand Cues, Interest Rates Remain in Focus

Oil markets are focused on demand cues, particularly after top importer China announced several stimulus measures recently. Positive U.S. labor market data also spurred optimism regarding demand in the world's biggest fuel consumer. However, this reading led to sharp gains in the dollar, which weighed on crude prices.

Crude Oil Spike Possible – BCA

Analysts at BCA Research indicate that the risks of a spike in crude oil prices have increased. While BCA maintains a cyclical outlook predicting crude prices will weaken over the next six to nine months, the current market environment is fraught with uncertainties that could support higher prices in the near term.

Geopolitical tensions, particularly escalating conflicts in the Middle East, create supply-side risks that have awakened market participants to potential supply shocks. This disruption occurs as the region accounts for a significant portion of global crude output, raising concerns about future infrastructure targeting in retaliatory attacks.

Despite these concerns, BCA Research notes that OPEC+ still has ample spare capacity to offset any temporary shocks. Key OPEC+ producers have been withholding significant production but might be willing to increase output to stabilize the market. The group kept production unchanged during last week's meeting but reiterated plans to begin increasing production in December.

*(Ambar Warrick contributed to this article.)