2024/08/26

Oil prices soar after Israeli strike on Hezbollah

Oil prices soared following an Israeli airstrike on Hezbollah targets in southern Lebanon, escalating tensions in the Middle East. Brent crude climbed to $80 per barrel, while West Texas Intermediate crude rose above $75. Israel launched over 100 warplanes on Sunday, targeting thousands of Hezbollah rocket launchers. In response, Hezbollah fired over 200 rockets, causing limited damage according to Israeli officials. Hezbollah, an Iranian-backed group designated as a terrorist organization by the United States, announced an end to its military operations for the day on Sunday but vowed to continue hostilities with Israel until a Gaza ceasefire is agreed upon.

Oil prices have remained slightly elevated year-to-date due to geopolitical risks and the anticipation of a US interest rate cut next month. In his Jackson Hole speech on Friday, Federal Reserve Chair Jerome Powell strongly signalled the completion of his inflation-fighting mission, stating that it's time to adjust monetary policy. This reinforced expectations for a rate cut next month.

Amidst relative calm following the recent exchange of fire, negotiations commenced in Cairo on Sunday to establish the groundwork for a ceasefire between Israel and Hamas. Israel also eased security restrictions on its citizens on Sunday evening, having previously imposed a state of emergency and closed its main airport for several hours.

The Middle East, which supplies approximately one-third of the world's crude, has not significantly impacted oil fundamentals. Volatility has remained below its recent peak, and options contracts continue to favor put options, suggesting a bearish outlook.

“Despite the heightened risks in the Middle East following the latest escalation, the market has shown increasing resilience to these tensions,” said Warren Patterson, head of commodities strategy at ING. “These tensions have persisted for nearly a year without affecting oil supply.”