Oil prices are on the move higher after Iran’s missile attack on Israel brought threats of escalation.
USOIL – Daily Chart
The price of US crude oil has rallied to prices around the $72 level and that provides initial resistance for further gains. The next target would be around $77.
The markets are awaiting Israel’s response to Tuesday’s missile attack from Iran after Israeli Prime Minister Netanyahu vowed to retaliate, saying the country “made a big mistake” and “will pay.” His comments sent crude prices higher by 3% to a 1-week high and there is a threat of further escalation in the region. Iran’s decision to send 180 rockets into Israel is a big step toward further escalation and threatens to bring the entire region into the fold.
Iran was unhappy after Israel’s efforts to attack Hezbollah in Lebanon, which included a ground invasion. There is also a risk of continued escalation between Russia and Ukraine.
Oil is unlikely to see short-sellers appear in this hostile environment. Output from the Organization of Petroleum Exporting Countries (OPEC) slumped by 480,000 barrels a day to 26.61 million a day in September, which has also boosted oil. Libyan production plunged by 38% after one of its rival governments halted exports.
The North African nation helped the rest of the oil-producing cartel as it tries to balance production and price. However, the issue is likely to be temporary with Libya set to restart output after its two rival parties reached a compromise.
Oil prices have slumped 17% since early-July but the threat of further fighting in the Middle East is likely to recover some of that loss. Israeli media has cited officials who say that a large retaliation on Iran could include hitting targets like gas or oil rigs, and Iran’s nuclear sites. Another official said the goal of the response will be to inflict “significant financial damage” and said Israeli leaders feel the strike “must be significant, and it must come soon.”
