(Bloomberg) -- Oil jumped the most since October after Hamas said Israel killed its political leader, stoking tensions in a region that produces around a third of the world’s crude.
West Texas Intermediate climbed 4.3% to settle near US$78 a barrel. Hamas said the leader, Ismail Haniyeh, was killed in an airstrike in Iran, while Iran Supreme Leader Ayatollah Ali Khamenei said Israel has “prepared the ground for its severe punishment.” The conflict has escalated since last weekend, when a Hezbollah strike in the Israel-controlled Golan Heights killed 12, potentially jeopardizing the ongoing cease-fire talks between Israel and Hamas.
Meanwhile in broader markets, traders embraced risk after the Fed signaled it’s moving closer to lowering borrowing costs amid easing inflation and a cooling labor market.
On the supply side, U.S. crude inventories fell by 3.44 million barrels last week, reaching the lowest level since February, government data showed. Stockpiles have slid for five straight weeks, the longest streak of declines since January 2022. An OPEC+ committee meeting is scheduled for Thursday, with markets split on whether the alliance will proceed with a scheduled output increase next quarter.
The market has been assessing the risk that fresh escalation could affect production and exports, including from Iran. Crude prices hadn’t reacted particularly sharply to recent developments in the war, which started in early October.
“Right now, putting $2 of geopolitical risk premium back in the market is telling me the market is covering shorts, but not worried about a real supply event,” said Rebecca Babin, senior energy trader at CIBC Private Wealth.
In a sign that oil traders are hedging against further conflict, Brent call volumes were the highest since early June on Tuesday. A gauge of market volatility is also the highest since the start of the summer.
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