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Brent futures exceeded the $80 per barrel mark on Wednesday as Iran’s allegations regarding the assassination of Hamas political leader Ismail Haniyeh heightened tensions in the Middle East.
 

Brent futures reach $80.32 per barrel

The ICE Brent contract for September delivery traded at $80.32 per barrel at 09:45 a.m. London time, marking a 2.15% increase from Tuesday’s closing price.

Similarly, front-month September NYMEX WTI futures were at $76.55 per barrel, up by 2.44% from the previous day’s settlement.
 

Conflict escalation impacts oil market dynamics

Oil prices have climbed amid intensified hostilities in the oil-rich Middle East region.

Israel’s ongoing conflict with Iran-backed Palestinian militant group Hamas, following a terror attack in October, has expanded to involve other Iran-supported factions like Lebanon’s Hezbollah and Yemen’s Houthi.

Iran’s paramilitary Revolutionary Guard accused Israel of assassinating Hamas political bureau chief Ismail Haniyeh at his Tehran residence.

In response, Iran’s supreme leader, Ayatollah Ali Khamenei, stated that Iran is obligated to retaliate against Israel.

The oil market has previously absorbed shocks from Middle East escalations, including Yemeni maritime attacks and direct hostilities between Israel, Iran, and Hezbollah. The recent developments have heightened market sensitivity.
 

Geopolitical risks in oil pricing

Clay Seigle, director of the global oil service at Rapidan Energy Group, noted that oil traders have been underestimating geopolitical risks in the Middle East.

He suggested that the market was previously complacent due to an anticipated disruption from Russia’s war in Ukraine that did not materialize and ongoing conflicts in Gaza.

Seigle indicated that the recent events could increase the risk premium on Brent prices, estimating an initial rise of at least $5 per barrel before any physical supply disruptions occur.
 

Long-term implications on oil prices

Analysts have mixed views on the long-term impact of these tensions on oil prices. Tamas Varga, an oil analyst at PVM Associates, highlighted that the assassination occurring on Iranian soil raises the stakes, potentially leading to supply disruptions.

He cautioned that the price rally might be short-lived without further escalations affecting physical output.

UBS analyst Giovanni Staunovo echoed this sentiment, stating that while concerns over escalating tensions have lifted crude prices, significant price impacts typically require actual supply disruptions.

The current reaction in oil prices has been modest due to the absence of such disruptions.
 

OPEC+ compliance and production quotas

The price movement coincides with a scheduled meeting of the OPEC+ technical committee on Thursday, where compliance with production quotas will be assessed.

This Joint Ministerial Monitoring Committee, although lacking authority to alter the coalition’s output strategy, can call for a full ministerial meeting if market conditions necessitate such action.

Quota compliance has become a focus, with OPEC Secretariat noting on July 24 that members Iraq, Kazakhstan, and Russia have pledged to offset overproduced volumes from the first half of the year through additional output cuts from July 2024 to September 2025.
 

European oil majors’ earnings reports

These developments coincide with the earnings reports from European oil majors.

Shell is set to release its earnings on Thursday, following BP’s announcement on Tuesday of a dividend increase and a better-than-expected second-quarter profit.

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