Oil prices surged by 4% on Monday, recovering some of the losses from the previous week, as concerns over the conflict between Israel and Hamas raised fears of potential supply disruptions in the Middle East.
Brent crude settled 4.2% higher at $88.15 a barrel.
U.S. West Texas Intermediate crude closed at $86.38 a barrel, up 4.3%.
Last week, oil prices had declined significantly, with Brent falling about 11% and WTI retreating more than 8%, marking the largest weekly drop since March. These losses were attributed to concerns about global demand and a deteriorating macroeconomic outlook.
The recent escalation of violence between Israel and Hamas has led to fears of a broader conflict that could impact oil supplies. Israel’s port of Ashkelon and its oil terminal have been shut down following the conflict.
Analysts have suggested that the conflict could have implications for Iranian exports if the U.S. believes that Iran is involved in Hamas’ attack. This could lead to stricter enforcement of sanctions on Iranian oil exports.
Saudi Arabia and Russia had agreed to a combined 1.3 million barrel per day voluntary cut until the end of 2023, contributing to supply tightness in the oil market. Any further disruptions in supply would exacerbate this tightness.
In addition to supply concerns, the conflict has raised the possibility of increased volatility and speculation in oil markets. Major international airlines have also suspended or reduced flights to and from Tel Aviv in response to the attacks.
However, the rise in oil prices due to the conflict could also contribute to inflation and potentially lead to rate hikes that may dampen demand.