Biden's words scared the oil market! Middle East conflict may face escalation, oil prices rise in response

Caishishe News on October 4th (Editor Zhou Ziyi) - Due to a statement by U.S. President Biden, market traders have begun to worry about the potential escalation of the Middle East conflict. On Thursday (October 3rd), the price of U.S. crude oil futures rose by more than 5%, marking the third consecutive trading day of gains.

On Thursday, President Biden was asked whether the U.S. would support Israel's attack on Iran's oil facilities. In response, Biden said, "We are discussing this issue, in any case, I think there might be some." He also added, "Nothing will happen today."

Biden's remarks seem to confirm that the U.S. is discussing the possibility of suggesting Israel to attack Iran's oil facilities. The market is beginning to worry whether Israel will indeed take this action in retaliation for Iran's ballistic missile attacks earlier this week.

Will oil prices spiral out of control?

As of Thursday's close, the WTI November contract price was $73.71 per barrel, up 5.15%, with an intraday high of $73.99 per barrel. WTI is set to achieve its largest weekly gain since March 2023, with a cumulative increase of about 8% this week. The Brent December contract price rose by 5.03% to $77.62 per barrel on Thursday, marking the highest settlement prices since the end of August.

In addition, the RBOB November gasoline contract price was $2.0926 per gallon, up 5.37%; the November natural gas contract price was $2.97 per thousand cubic feet, up 2.91%.

Daniel Ghali, Senior Commodity Strategist at TD Securities, stated that Biden's remarks are a catalyst for pushing up energy prices and emphasized, "Geopolitical risks in the Middle East may be at their highest level since the Gulf War."

Meanwhile, Claudio Galimberti, Chief Economist at Rystad Energy, also believes that with the escalation of the Middle East conflict, the risk of oil supply disruptions is increasing. However, he suggested that OPEC+ holds a large amount of spare crude oil, which may fill this gap. "In one of the most severe and widespread crises in the Middle East in the past 40 years, this idle capacity can currently prevent oil prices from spiraling out of control."

Citigroup analyst Eric Lee stated on Thursday, "The market is artificially tightening because OPEC+ currently has about 6 million barrels of idle capacity, and they plan to restore this capacity, even though this plan has been repeatedly delayed. But as long as this plan exists, it can provide a soft ceiling for the price of crude oil."

Bjarne Schieldrop, Chief Commodity Analyst at SEB, also mentioned that if Israel attacks Iran's Islamic Republic's oil infrastructure in retaliation for Iran's ballistic missile attacks, OPEC+'s spare capacity will be sufficient to compensate for the interruption of Iran's exports.

On the other hand, Ghali of TD Securities believes that the issue lies in the fact that the globally idle oil production capacity is mainly concentrated in the Middle East, especially in Gulf countries. If a larger-scale war breaks out, this portion of capacity may also face risks If Israel really strikes Iran's oil industry, the biggest concern will be the interruption of supply in the Strait of Hormuz, one of the world's most important oil trading routes. Schieldrop pointed out that this would add significant risk premium to oil, with prices potentially soaring to $200 per barrel.

However, some people doubt whether Israel will actually target crude oil facilities. Rebecca Babin, a senior energy trader at the Canadian Imperial Bank of Commerce, said, "Israel's actions are mainly influenced by the Biden administration, which urgently wants to maintain oil price stability ahead of the upcoming election."

As the election is only a month away, the escalation of conflict in the Middle East will increase gasoline costs for American drivers, which will not be favorable for Democrats in the election