Crude Oil Rises, Heading for Significant Weekly Gains

Oil prices increased on Friday, positioning themselves for significant weekly gains due to concerns that the ongoing conflict in the Middle East could disrupt crude oil supply from this vital export region.

By 09:20 ET (13:20 GMT), futures were trading 0.8% higher at $78.24 a barrel, while Brent contracts also rose by 0.8%, reaching $74.35 a barrel. This week, futures were anticipated to gain approximately 8%, marking the largest increase since February 2023, while U.S. crude futures were on track for a 7.5% rise, the most substantial since March of the previous year.

### Crude Gains on Middle East Risk Premium

The crude oil market has seen a risk premium due to traders awaiting Israel’s possible response to Iran’s launch of over 180 missiles into its territory. There is concern that any Israeli retaliation might target Iranian oil infrastructure, which could disrupt supply from this oil-rich region.

President Joe Biden indicated on Thursday that discussions were ongoing regarding U.S. support for Israeli strikes on Iran’s oil facilities in retaliation for the missile attacks. Analysts at Goldman Sachs predict that oil prices could soar by $20 a barrel if Iranian production faces a significant disruption. According to Daan Struyven, co-head of global commodities research at Goldman Sachs, a sustained drop of 1 million barrels per day in Iranian production could lead to a price peak increase of around $20 per barrel next year.

Although OPEC has sufficient spare capacity to cover potential losses in Iranian supplies, much of this capacity is situated in the Middle East Gulf region, which may be at risk if the conflict escalates further, noted UBS analyst Giovanni Staunovo.

### Nonfarm Payrolls Impress

The crude oil market also received a boost on Friday from strong U.S. employment data, which showed that job growth exceeded expectations in September, with an increase of 254,000 jobs last month compared to an upwardly revised figure of 159,000 in August. Meanwhile, the unemployment rate dropped to 4.1%, lower than forecasts that anticipated it would match August’s rate of 4.2%.

While this robust jobs report reduces the likelihood of another aggressive interest rate cut by the Federal Reserve, Chair Jerome Powell had already indicated earlier in the week that the central bank might pursue more traditional quarter-point reductions in the future. Moreover, the strength of the labor market could suggest a potential soft landing for the U.S. economy, indicating that energy demand may remain relatively strong.