(Bloomberg) -- Oil surged as the market braced for the possibility that Israel’s retaliation against Iran for its recent missile barrage will include strikes on the country’s oil industry.
West Texas Intermediate soared about 5% to top $73 a barrel after President Joe Biden was asked if he would support Israel striking Iran’s oil facilities. “We’re discussing that,” Biden responded. “I think that would be a little — anyways.” The White House didn’t respond to multiple requests for comment on Biden’s statement. Biden also said he wasn’t expecting Israel’s retaliation to come Thursday.
Both WTI and global benchmark Brent crude spiked to the highest intraday prices in about a month after the exchange.
The oil market has been transfixed by the latest crisis in the Middle East, which comes after a year of turmoil in which Israel has faced off against Iran and its proxies in Gaza, Lebanon, Yemen and elsewhere. The region accounts for about a third of global supply, and traders are concerned that the latest escalation could hit flows if energy facilities are attacked or supply routes are blocked.
“The fact that energy infrastructure is now considered a potential target isn’t entirely surprising to the market, but hearing comments from Biden about it brings the possibility closer to reality,” said Rebecca Babin, senior energy trader at CIBC Private Wealth. “There has been some skepticism around whether Israel would actually target oil facilities, largely due to the influence of the Biden administration, which is keen on keeping oil prices stable ahead of the upcoming elections.”
A major strike by Israel on Iran’s export capacity could take 1.5 million barrels of daily supply off the market, Citigroup Inc. analysts including Francesco Martoccia said in a note on Wednesday. If Israel struck minor infrastructure, such as downstream assets, 300,000 to 450,000 barrels of output could be lost, the analysts said.
Oil investors are also preparing for more volatile moves in the days ahead as algorithm-driven traders, who have come to dominate daily market activity, react to developments in the Middle East. While much of crude’s recent gain has involved speculators unwinding their record bearish positions, some are now finally making bullish wagers, traders said.
The latest price spikes caused a gauge of Brent’s implied volatility to surge to the highest in almost a year. Trading of bullish Brent call options hit a record on Wednesday, led by contracts at $100 a barrel.
Beyond the crisis, there are signs of ample supplies. OPEC+ plans to restore some of its shuttered capacity, with increases set to start in December after a two-month delay. Libya resumed oil production, returning hundreds of thousands of barrels a day, after a political standoff in the country eased.
In the US, meanwhile, official data showed crude inventories unexpectedly rose by 3.89 million barrels last week, the biggest increase in about five months.
“Markets have been artificially tightened because OPEC+ is holding something like 6 million barrels a day of spare capacity from the market, and they have a plan to bring it back even if they might keep pushing it back,” Citigroup’s Eric Lee told Bloomberg Television on Thursday. “With that plan in place, with so much oil potentially overhanging the market, I think it’s capped, provided a bit of a soft ceiling to where prices can go.”
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--With assistance from Alex Longley.
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