An Israeli navy vessel patrols near an oil platform in the Leviathan gas field off the Israeli coast on Sept. 20.Ariel Schalit/The Associated Press
Oil prices jumped 2.6 per cent on Tuesday as global concerns grew that military conflict in the Middle East could escalate and threaten production facilities in Iran and other major oil producers in the region.
Iran, the world’s ninth-largest oil producer, fired hundreds of missiles at Israeli cities in retaliation for Israel’s deadly bombings in Gaza and Lebanon. Israel’s military operations have included killing senior leaders of Hamas and Hezbollah and now involve ground attacks in southern Lebanon.
U.S. President Joe Biden has pledged help for Israel in its defence against Iranian missile attacks.
World benchmark Brent crude settled up US$1.86 at US$73.56 a barrel on Tuesday, its highest level since Sept. 24 but still well off the year’s highs. West Texas Intermediate finished the session at US$69.83 a barrel, up US$1.66. Earlier in the day, prices were up as much as 5.5 per cent.
There were no immediate reports of oil production or export facilities under attack, or flows being disrupted, but Daniel Ghali, director of commodities strategy with TD Securities, said the expanding hostilities throughout the region could add a new risk premium to the market.
Late on Tuesday, Israeli Prime Minister Benjamin Netanyahu increased those odds, vowing to retaliate against Iran. Mr. Netanyahu said the missile attack was a failure and that Iran would soon learn a painful lesson, as its enemies in Gaza, Lebanon and other places have learned.
“This is a very significant escalation in the conflict in the Middle East,” Mr. Ghali said. “Any time Iran and Israel are firing directly at each other, it raises the risk that energy infrastructure might be impacted, and that would be very significant for oil prices.”
Despite Tuesday’s sharp gain in oil prices, crude remains well under this year’s highs above US$91 a barrel. The market has been weak in recent months owing to lower-than-expected demand, notably in China, as well as speculation that Saudi Arabia, the world’s largest producer, and its OPEC allies could open their taps in a bid for more market share.
Iran backs Hamas, Hezbollah and Yemen’s Houthi rebels, who are also hostile to Israel. It also exports about 1.7 million barrels a day. Mr. Ghali said a wider regional conflict in the Middle East could put energy infrastructure at risk in the United Arab Emirates and Saudi Arabia, which holds the most spare capacity of any country.
Jackie Forrest, executive director of the ARC Energy Research Institute in Calgary, said oil markets have so far shrugged off the impact of the Middle East conflict as it has dragged on over the past year because it has not resulted in the disruption of any supplies.
“That’s not to say there isn’t a risk, and there’s great potential for the war to go beyond where it is today and Iran to get involved, and it really could have impacts on the oil market,” Ms. Forrest said. “But because this whole year has been characterized by risks that never materialized in outages, you’re not really seeing people put much high probability on that event.”
Still, the industry is taking precautions. On Tuesday, Chevron Corp. CVX-N said it had shut down two natural gas platforms off the Israeli coast. The platforms, Tamar and Leviathan, supply the Israeli market as well as those in Egypt and Jordan, Bloomberg reported.
The rise in oil prices prompted sizable gains in the shares of many Canadian oil producers. The S&P/TSX Capped Energy Index rose 3.4 per cent on the day to its highest since early September.
Among the sector’s big names, Suncor Energy Inc. SU-T rose 4 per cent, Cenovus Energy Inc. CVE-T gained 2.4 per cent, Canadian Natural Resources Ltd. CNQ-T jumped 4.5 per cent and MEG Energy Corp. MEG-T climbed 3.8 per cent.
The profitability of oil-weighted producers has weakened as crude prices fell about US$10 a barrel in the past year, so the upward movement is beneficial to them, said Jonah Resnick, senior analyst at Wood Mackenzie. However, the gains will not likely affect their capital spending plans for the remainder of the year, he said.
With a report from Reuters