Oil continued yesterday's rally, and rose by another 1%, driven by the prospect of a larger conflict in the Middle East that could disrupt oil flows. Meanwhile, since the beginning of the week, prices for both brands of oil - Brent and WTI - have jumped by about 9% (the strongest weekly increase in two years).
Experts said that against the background of recent statements by US President Joe Biden, fears are growing that Israel will strike at the Iranian oil infrastructure, which could provoke retaliatory actions, dragging neighboring states into the conflict. The Middle East accounts for about a third of the world’s crude supply. Iran has been pumping about 3.3 million barrels a day in recent months, making it the No. 3 producer in OPEC. According to Citigroup analysts, a major strike by Israel on Iran's export capacity could take 1.5 million barrels of daily supply off the market, but if Israel struck minor infrastructure, 300,000 to 450,000 barrels may be lost.
But part of the concerns about oil supplies were mitigated by OPEC's spare production capacity. In addition, yesterday the Libyan government and National Oil Corp announced the reopening of all oil fields and export terminals. It is expected that against the background of the latest decision, the volume of oil production in the country will grow to about 1.2 million barrels per day.
Investors are also preparing for the publication of a key report on the US labor market, which may clarify the extent of the Fed's monetary easing policy. Lower interest rates typically reduce the cost of borrowing, which can boost economic activity and lift demand for oil. According to the CME FedWatch Tool, markets see a 34.7% probability of a 0.50% rate cut at the November meeting (down from 53.3% a week earlier) and a 45.6% probability of a 0.25% rate cut in December (compared to 49.7% a week earlier).