Oil prices have jumped up and down throughout the entire month of October. Here’s why.
Crude oil prices jumped over 1% on Monday despite last week’s bearish trend in another show of high volatility for the world’s most sought-after commodity. Once again, oil prices have been affected by tensions in the Middle East, Chinese oil demand, and US production.
Brent, the global oil benchmark, jumped 1.41% on Monday to $74.09 per barrel. West Texas Intermediate, the US benchmark, rose by 1.73% to $70.42/barrel.
Oil prices are back above the $70/barrel level after last week’s price decline. They, however, are still far below October’s highs at over $80.
In early October, Israel-Iran tensions escalated to record highs, fueling fears for a quick rebound in oil prices. Israel’s killing of Hezbollah’s, a key Iranian ally, top leaders prompted a fierce response from the Islamic theocracy. Teheran launched a heavy missile attack, the second of its kind against Israel in history, which caused one Palestinian death in the West Bank.
In response to the attack, Israeli Prime Minister Benjamin Netanyahu pledged to hit Iran’s oil and nuclear facilities. Such an attack, according to analysts, would have disrupted roughly 4% of the world’s oil supply.
In the “worst-case scenario”, one analyst said, Iran could have then blocked the Hormuz Strait, where over 30% of the world’s oil must pass through. Such a move, the analyst argued, would have brought oil prices to over $200 per barrel.
Increasing volatility
Following Netanyahu’s threat, however, oil prices fell after Israel’s promise that it would not hit Iran’s oil facilities. Prices eased, with Brent falling from its early-month highs at $80.93 to the weekend lows at $73.33.
Helping the price decline was demand data released from China, showing deflationary pressure in the world’s second-largest economy. China, the world’s largest oil importer, is going through a difficult economic period, with Chinese consumer confidence at some of its lowest levels in recent history.
Without China buying oil, and with Israel-Iran tensions easing for the moment, oil prices dropped back to manageable levels. Year-to-date, Brent prices fell by almost 2.5%.
On Monday, however, oil prices started rising again as the Organization of Petroleum Exporting Countries (OPEC) said it was “bullish” on future Chinese demand. A Hezbollah missile hitting Netanyahu’s neighbor also increased tensions between Israel and its enemies again, with the world awaiting a response.
Most analysts, however, remain bearish. “If we don’t see a major escalation of the situation in the Middle East, I still expect that oil prices will be further under pressure because we are entering a period, including next year, of more comfortable markets,” Fatih Birol, head of the IEA, told Bloomberg Television on Monday.
