Oil rose after Iran called for an embargo against Israel by Muslim countries, following a deadly explosion at a Gaza hospital that raised the risk of wider hostilities in the Middle East.
West Texas Intermediate settled above $88 a barrel after earlier leaping to $90 on increased geopolitical tensions. Iran’s foreign minister called for a full and immediate boycott of Israel by Muslim countries, including an oil embargo on the country. While Israel’s oil imports are small in the context of global supply, and little of them come from the Middle East, the comments marked a verbal escalation over the war between Israel and Hamas.
The comments follow a blast at a hospital in Gaza City that killed hundreds. Leaders of Jordan, Egypt and the Palestinian Authority canceled a summit with US President Joe Biden, complicating his push to ensure the Israel-Hamas conflict doesn’t widen across the region. Biden arrived in Israel early Wednesday.
Meanwhile, traders are assessing dwindling US stockpiles. Inventories at the largest storage hub in Cushing, Oklahoma, dropped to 21 million barrels, the lowest since 2014. Supplies at the location are nearing minimum operating requirements, and many traders consider the inventories to already be at the lowest levels that allow tanks to function normally.
The global oil market has been rocked by the Middle East crisis. Iran, which supports Hamas and is a key crude supplier, had already been warning of the possibility of escalation. For now, though, oil price spikes are limited by a relative abundance of spare capacity that could come online in the event of any disruption as well as by concerns about slowing global growth and its effect on demand.
“Traders are watching closely for any sign the conflict is spilling over in ways that could have a big supply impact,” said Richard Bronze, an analyst at consultant Energy Aspects, adding that Israel mostly gets its oil from outside the Middle East and North Africa region. “But calls for an embargo will add to the comparisons to the 1970s crises that were already being discussed in the market, even if the impact is mostly symbolic for now.”
The increasingly global nature of the oil market gives Israel plenty of scope to overcome any embargo, although much of its supply comes from Kazakhstan and Azerbaijan, two majority-Muslim nations. It also imports from West African producers.
Gaza authorities said the hospital blast that left hundreds dead was caused by an Israeli airstrike. Israel, meanwhile, pointed the finger at a failed missile from the militant group Palestinian Islamic Jihad. President Joe Biden suggested the Israeli military was not responsible.
“The situation was already so dangerous that it merited an unplanned visit by POTUS,” said Paul Horsnell, head of commodities research at Standard Chartered. “Once a level of risk commensurate with that is reached, it’s perhaps hard to graduate the scale further.”
- WTI for November delivery rose $1.66 to settle at $88.32 a barrel in New York.
- Brent for December settlement added $1.60 to settle at $91.50 a barrel.