Oil Rises as Middle East Conflict Intensifies, Gains Limited by Global Supply Outlook

Oil prices rose slightly in early trading on Thursday as investors considered the intensifying conflict in the Middle East and its potential impact on crude oil supply, while also noting that the global market remains sufficiently supplied.

As of 0006 GMT, Brent crude futures increased by 64 cents, or 0.87%, reaching $74.54 a barrel. Meanwhile, U.S. West Texas Intermediate crude futures rose by 72 cents, or 1.03%, to $70.82 a barrel.

Tensions escalated further following an Israeli airstrike in central Beirut’s Bachoura neighborhood, which resulted in two fatalities and 11 injuries, according to the Lebanese health ministry.

The conflict expanded on Tuesday when Iran launched more than 180 ballistic missiles at Israel, marking a significant escalation that affected not only Israel and Palestine, but also spilled over into Lebanon and other regions.

Despite these tensions, an unexpected increase in U.S. crude inventories mitigated some concerns over supply disruptions. The Energy Information Administration reported a rise of 3.9 million barrels in U.S. crude stocks, bringing the total to 417 million barrels for the week ending September 27. This figure contrasted with analysts’ predictions for a drawdown of 1.3 million barrels.

ANZ analysts noted that the increasing U.S. inventories suggest the market is well supplied enough to withstand potential disruptions.

Many investors remain relatively unaffected, as global crude supplies have not yet been disrupted by the ongoing unrest, and OPEC’s spare capacity helps to alleviate concerns. Jim Simpson, CEO of East Daley Analytics, indicated that while prices may remain elevated or volatile following Iran’s attack, overall production levels and supply are adequate.

OPEC reportedly has sufficient spare oil capacity to offset any significant loss of Iranian production if Israel were to target Iranian facilities.

Nevertheless, traders do express concerns regarding potential retaliatory actions from Iran against its Gulf neighbors, which could complicate matters. Giovanni Staunovo, an analyst at UBS, warned that the available spare capacity might be significantly reduced if energy infrastructure in the region faces renewed attacks.