Oil prices jumped more than 3% on Monday, with Brent crude exceeding $80 per barrel for the first time since August. This rise was driven by fears of a wider war in the Middle East, prompting investors to exit record bearish positions that had built up last month.
Brent crude futures increased by $2.88, or 3.7%, settling at $80.93 per barrel. U.S. West Texas Intermediate (WTI) futures also rose by $2.76, or 3.7%, closing at $77.14 per barrel. Last week, Brent gained over 8%, while WTI climbed more than 9%—the largest weekly increases in over a year. These gains followed Iran’s missile strike on Israel on October 1, which raised concerns about potential Israeli retaliation targeting Iran’s oil infrastructure.
Andrew Lipow, president of Lipow Oil Associates, warned that such actions could drive oil prices up by another $3 to $5 per barrel.
On Monday, rockets fired by Iran-backed Hezbollah struck Haifa, Israel’s third-largest city. Israel appears ready to expand its ground operations in southern Lebanon, coinciding with the first anniversary of the ongoing Gaza war that has escalated tensions across the region. Analysts at Tudor, Pickering, Holt & Co noted that the conflict poses risks not only to Iran’s production of 3.4 million barrels of oil per day but also to overall regional oil supply.
The day’s gains were primarily attributed to money managers closing out bearish positions due to increasing risks to Middle Eastern oil supplies, according to UBS analyst Giovanni Staunovo. Hedge funds and other investors had built record bearish positions in oil futures by mid-September, anticipating lower demand, especially from China, the world’s largest crude oil importer.
John Kilduff, a partner at Again Capital in New York, stated, “There’s a lot of short-covering in the market that started last week and is still ongoing.” He characterized the market sentiment as “buy now, ask questions later.” However, he cautioned that this fear-driven rally leaves oil prices vulnerable to significant declines if Israel chooses not to strike Iranian oil infrastructure, which could result in a drop of $5 to $7 per barrel, according to both Kilduff and Lipow.
Brent Belote, founder of the commodities-focused hedge fund Cayler Capital, mentioned that he previously expected oil prices to test the low $60s. He noted ongoing weak demand and highlighted that the Organization of the Petroleum Exporting Countries (OPEC) has sufficient spare capacity to offset any disruptions in Iranian exports.
OPEC and its allies, known as OPEC+, plan to increase production in December after implementing cuts in recent years to support prices amid weak global demand. However, Lipow stated that Brent crude prices would likely need to approach $90 or higher before OPEC+ considers boosting supplies.
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