Oil prices rise on fears of wider Middle East conflict, but global supply not yet disrupted

Oil prices rose on Thursday, the 3rd of October, with Brent crude up 94 cents (1.27%) to 74.84 US dollars per barrel and US West Texas Intermediate up 99 cents (1.41%) to 71.09 US dollars, driven by concerns about a wider Middle East conflict that could disrupt supply despite a forecast of ample global supply, reports Reuters.
“After the initial jitters caused by the geopolitical risks in the Middle East, some calm has returned to global markets, but of course market participants are still keeping a close eye on any Israeli reaction,” a market strategist said, adding that the key question is whether Israel will retaliate against Iran’s energy infrastructure.
Israel bombed downtown Beirut in the early hours of Thursday, killing at least six people, after eight of its soldiers were killed in Lebanon in clashes against the Iran-backed armed group Hezbollah.
The attack came a day after Iran fired more than 180 ballistic missiles into Israel, escalating hostilities that have spilled over from Israel and the occupied Palestinian territories into Lebanon and Syria.
“Now we have to wait and see what the Israeli reaction will be, and I suspect it will be after the Rosh Hashanah holiday ends tomorrow,” said market analyst Tony Sycamore, adding that Israel is unlikely to target Iran’s oil infrastructure because it could drive up oil prices, which could worry Israel’s allies who are focused on curbing inflation.
Meanwhile, US crude inventories rose by 3.9 million barrels, indicating ample supply despite expectations of a decline, with analysts observing that the market remains well supplied, while unrest in key oil producing regions has not yet disrupted global supply.
Although oil prices may remain volatile for some time after the Iranian attack, the Organisation of the Petroleum Exporting Countries (OPEC) has sufficient reserves to cover Iranian supply losses in the event if Israel were to stop the country’s installations.
Although traders are concerned that OPEC could struggle to maintain supplies if Iran targets energy infrastructure in neighbouring Gulf states, which would reduce the group’s effective spare capacity, according to UBS analyst Giovanni Staunovo.