Oil prices rise over 3% as Israel weighs response to Iran missile attack

By William Watts

Oil futures extended gains Wednesday, rising more than 3% while investors awaited Israel's response to a massive missile barrage by Iran a day earlier, stoking fears of a wider conflict that could impede flows of crude from the Middle East.

Price moves

West Texas Intermediate crude CL.1 for November delivery CL00 CLX24 rose $2.53, or 3.6%, to $72.36 a barrel on the New York Mercantile Exchange.December Brent crude BRN00 BRNZ24, the global benchmark, gained $2.39, or 3.2%, to $75.95 a barrel on ICE Futures Europe.

Market drivers

Iran, a member of the Organization of the Petroleum Exporting Countries, on Monday fired around 180 missiles at Israel in retaliation for a series of blows against its proxy Hezbollah. Israel also began a ground incursion in southern Lebanon aimed at Hezbollah earlier Tuesday.

Israeli Prime Minister Benjamin Netanyahu vowed late Tuesday to retaliate against Iran, which he said "made a big mistake tonight and it will pay for it."

Most of the missiles were downed by Israel. A similar but smaller attack by Iran in April was followed by a limited Israeli response, leaving no lasting effect on oil prices.

"How Israel responds to the attacks and the subsequent reaction from Iran could easily send WTI futures up or down by 5%+ from yesterday's close in the mid-$70/barrel area," wrote analysts at Sevens Report Research, in a Wednesday note.

"An Israeli attack on any nuclear facilities or oil infrastructure would meet the criteria for the bullish $5 (minimum) oil market rally while a muted response or de-escalation would likely see yesterday's trough-to-peak fear bid of roughly $6/barrel come unwound leaving WTI back in the mid-to-upper $60/barrel range," they said.

See: What Iran's missile attack on Israel means for oil prices

Oil initially rose last October following the Hamas attack on southern Israel, but worries over tepid demand from China and increased output from producers outside of OPEC and its allies have weighed on crude prices overall. WTI is down more than 18% based on front-month contracts over the past 12 months.

Meanwhile, Saudi Arabia's oil minister reportedly warned fellow producers that oil could drop to $50 a barrel if they don't comply with agreed production cuts. The Wall Street Journal reported on the comments made by Prince Abdulaziz bin Salman to other OPEC members, singling out Iraq and Kazakhstan in particular.

A meeting of ministers from OPEC+ - made up of OPEC and its Russia-led allies - is set for Wednesday. The group is slated to unwind around 180,000 barrels a day of output cuts beginning in December.

The American Petroleum Institute, an industry trade group, late Tuesday reported that U.S. crude inventories fell by 1.46 million barrels last week, according to a source citing the data. Official data from the Energy Information Administration is due Tuesday morning.

Analysts surveyed by S&P Global Commodity Insights, on average, expect the EIA to show crude inventories unchanged in the week ended Sept. 27, with gasoline stocks down 400,000 barrels and distillates, which include diesel fuel and heating oil, down 1.7 million barrels.

-William Watts

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10-02-24 0744ET

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