Oil prices are gaining on escalating tensions in the Middle East on Wednesday. Israel’s Benjamin Netanyahu vowed to retaliate after Iran fired dozens of missiles into Israel on Tuesday as retaliation for the killing of Hezbollah and Hamas leaders.
After increasing by almost US$2 a barrel on Tuesday, West Texas Intermediate (WTI) gained another 50 cents on Wednesday and is changing hands at more than $70, late in the trading session.
In an interview with BNN Bloomberg, Andrew Lipow from Lipow Oil Associates said oil is gaining because the “market is pricing in a great probability of war between Israel and Iran.”
Lipow said there are two key scenarios that could impact oil supply, one if Israel were to attack Iranian export facilities and two, which would have more serious implications, if the Strait of Hormuz would be shut down. Both scenarios would likely cause the price of oil to increase because they would remove supply.
Lipow added that “there has been no supply disruptions in the oil markets since the Hamas-led attack on Israel a year ago.”
David Deitze from Peapack Private Wealth also said a wider conflict in the Middle East could dampen supply, describing the scenario as “almost the catalyst the energy market needed.”
If the Strait of Hormuz gets closed off, in particular, Deitze said that would have a major impact as 30 per cent of the world’s oil passes through the area. Any shutdown would cause “further big increases in the price of energy,” he said.
But Lipow says Iran is unlikely to block the strait in any conflagration because, Iraq, Kuwait and Saudi Arabia also depend on it to export their crude oil.
