Crude oil prices surged on Monday, opening with a significant gap and closing the session 4.35% higher, marking the most substantial single-day gain since early April. This remarkable upswing was driven by weekend developments that saw Hamas launching attacks on Israel, creating concerns about disruptions in the oil supply.
On the same day, Israel issued an order to Chevron, a U.S.-based company, to halt gas production at the Tamar field, located off the country’s coast. Israel cited its intent to explore “alternative fuel sources” to meet its energy needs.
It’s worth noting that the Biden administration has significantly reduced the Strategic Petroleum Reserve (SPR), originally established for emergency scenarios, to its lowest level in four decades. Presently, the SPR contains 350 million barrels of oil, which is 44% lower than its January 2021 levels when President Biden assumed office, and it hasn’t been at this level since September 1983. The decision has come into sharp focus amidst the conflict between Israel and the Palestinian Islamist group, Hamas. This ongoing conflict has led to a substantial surge in oil prices.
Senator Lindsey Graham placed the ultimate blame for the alarming terrorist attacks by Hamas on Israel on Iran. He expressed concern that if Hamas targeted American and Israeli hostages and if Hezbollah initiated an attack in the north, it would create a two-front conflict for Israel. In response, he proposed taking military action and bombing Iran’s oil infrastructure and fields.
Furthermore, on Thursday, the United States imposed its first sanctions on the owners of tankers transporting Russian oil priced above the G7’s designated cap of $60 per barrel. These sanctions targeted tankers in Turkey and the United Arab Emirates, aiming to close existing loopholes in the mechanism designed to penalize Moscow for its actions in the Ukraine conflict.
In the event that the conflict were to encompass Iran, it could pose a potential risk to as much as 3% of the global oil supply. Furthermore, should a more extensive conflict arise, leading to disruptions in transit through the Strait of Hormuz, around 20% of the world’s oil supply could face adverse consequences.
The timing of these developments is of utmost importance, as it is highly probable that the attacks will postpone any potential reconciliation between Saudi Arabia and Israel. Additionally, this hinders the likelihood of Saudi Arabia scaling back or entirely removing its extra daily production cut of 1 million barrels should oil prices experience a resurgence in their recent decline.
In September, the cost of diesel surged by over 8 pence per litre, primarily due to global reductions in oil production, pushing the per-barrel price close to $100.
According to data from RAC Fuel Watch, it’s anticipated that diesel prices will continue to rise in the weeks ahead, leading many large consumers to look at fixing current prices for the foreseeable future.