Brent crude ends above $80 on rising risk of Israeli response to Iranian missile attack

By Myra P. Saefong and William Watts

WTI, Brent crude up nearly 4% to settle at six-week highs

Oil futures climbed by nearly 4% on Monday, with global Brent prices topping $80 a barrel and settling at their highest since late August, as the risk of an Israeli response to last week's Iranian missile strike intensified.

That raised the potential for a more direct conflict between Israel and Iran that could threaten crude supplies from the region.

Price moves

-- December Brent crude BRN00 BRNZ24, the global benchmark, rose $2.88, or 3.7%, to settle at $80.93 a barrel on ICE Futures Europe. Prices for the front month settled at their highest since Aug. 26, according to Dow Jones Market Data.

-- West Texas Intermediate crude CL00 for November delivery CL.1 CLX24 rose $2.76, or 3.7%, to settle at $77.14 a barrel on the New York Mercantile Exchange - also the highest finish since late August.

-- November gasoline RBX24 added 2.8% to $2.15 a gallon, while November heating oil HOX24 climbed 3.6% to $2.40 a gallon.

-- Natural gas for November delivery NGX24 ended at $2.75 per million British thermal units, down 3.8%.

Market drivers

Tensions between Israel and Iran following Iran's missile attack on Israel last week and reports that Israeli Prime Minister Benjamin Netanyahu was meeting with his military advisers have kept oil traders on guard for oil-price spikes, said Phil Flynn, senior market analyst at the Price Futures Group.

And while Hurricane Milton in the Gulf of Mexico has not at this point directly affected any offshore energy production, "we still have to be very careful just because of the size of this storm," Flynn told MarketWatch. It's possible that there may be some damage to energy facilities as the storm develops, he said.

Brent crude's settlement above $80 "suggests that the market is back in an uptrend and the driving force continues to be the potential of losing supplies in a world where supplies are already tight," Flynn said.

Israel has vowed to retaliate for a ballistic-missile attack last week by Iran. Hezbollah on Monday fired rockets at Haifa in northern Israel. The Israeli military stepped up its bombardment of northern Gaza and southern Lebanon.

Read: Bets oil will hit $100 a barrel surge on fears of wider Middle Eastern war

"Oil prices have rallied significantly as the Middle East war extends to Lebanon" and on speculation that an Israeli counterattack on Iran is imminent, Jay Hatfield, chief executive officer at Infrastructure Capital Advisors, told MarketWatch. In the event that Iranian oil production is hit by a counterstrike, "oil prices could spike to as high as $90 per barrel if there is extensive damage," he said.

"We don't see significant downside to oil prices from here," even if there were a strike on Iran that did not target oil production, Hatfield said. "Prices are depressed due to seasonal factors and there is optimism regarding demand out of China due to powerful government stimulus."

See: Israeli strikes on Iran's 'oil island' could send crude prices soaring

Monday marked one year since Iran-backed Hamas launched a deadly attack on southern Israel, setting off the war in Gaza. Israel last month stepped up attacks on Iranian-backed Hezbollah in Lebanon, killing the militia group's leader.

Long story short, there's a "massive short squeeze underway in the global crude-oil market right now" as traders "mispriced geopolitical risks ahead of this most recent escalation between Israel and Iran, while they simultaneously had penciled in weaker economic growth and a subsequent pullback in demand," Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

Brent crude rose 9.1% last week, its largest weekly gain since October 2022. WTI rose the same amount, the biggest weekly gain for the U.S. benchmark since March 2023.

Read: Oil shock? How OPEC+ could soften the blow if the Middle East conflict hits supply.

In the U.S., energy traders are keeping a close watch on Hurricane Milton, which is expected to approach Florida's Gulf coast on Wednesday. On Monday afternoon, the National Hurricane Center said the storm had strengthened into a Category 5 hurricane.

Milton is not expected to directly affect liquified natural gas export facilities, "which likely limits longer-term price implications," Seth Harper, commodity analyst at Schneider Electric, said in market commentary. "Nonetheless, Milton could significantly dampen power generation demand in Florida given the likelihood of near-term outages."

James Roemer, publisher of the WeatherWealth newsletter, told MarketWatch Monday that he's been bearish on natural gas with expectations for a warm fall season and possibly a warm early winter, as well as the potential for "demand destruction from hurricanes."

Associated Press contributed.

-Myra P. Saefong -William Watts

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10-07-24 1537ET

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