Oil tops $75 a barrel as conflict intensifies in Middle East

Oil prices breached $75 a barrel amid reports that Israel could strike Iranian oil facilities in retaliation for Iran’s missile attack on the country, leading to fears of full-scale war in the Middle East and consequent disruption to supply.
Brent crude, the international benchmark, rose $1.9, or 2.6 per cent, to $73.60, after going above $75 earlier in the day. Meanwhile West Texas Intermediate was trading $0.88, or 1.3 per cent, higher, at $70.71.
About £3.5 billion was added to the market values of Shell and BP, London’s oil majors, as their shares closed 2.2 per cent and 1.6 per cent higher, respectively.
The yield on ten–year UK government bonds was also on course for its largest daily gain since June, as the higher oil price raised concerns of inflationary pressures.
Both Israel and the United States have warned Iran of “severe consequences” after Tehran’s armed forces fired almost 200 ballistic missiles at Israel, in what was the biggest ever direct attack on its regional adversary. Tehran responded by threatening to strike infrastructure across Israel if its territory was attacked.
Israel has ordered more soldiers into Lebanon to fight Iran-backed militant group Hezbollah, with little sign of an easing in the tensions in the region.
Israel is considering attacking Iranian oil facilities, according to reports, but some experts suggested this was less likely than other options.
“Speculation of an Israeli strike on Iranian oil fields seems unlikely, as such a move would drive oil prices toward $80, displeasing Israel’s allies who are making strides against inflation,” said Tony Sycamore, an analyst at IG.
“Instead, strategic Israeli strikes on critical weapons facilities and military objectives are more probable.”
Callum Macpherson, head of commodities at Investec, said the market was likely to remain “jumpy for now” on the “what-if, particularly while it awaits Israel’s retaliation and those with short positions buy into any dips to exit their positions to avoid the risk of being caught by another leg higher”.
Prior to the attacks, oil was trading near a two-week low as weak global demand and the outlook for increased supply had outweighed concerns over conflict in the region.
David Oxley, a commodities economist at Capital Economics, said: “Until the geopolitical situation in the Middle East de-escalates, oil prices will clearly remain at risk of spiking higher.” However, faltering demand and increasing supply among non-Opec producers mean the risks to the oil price remain “skewed to the downside”, he added.
A number of ministers from the Opec+ producer group will meet on Wednesday to assess the market but it is expected that no policy changes will be made. Opec+ includes the 12 members of the Organisation of the Petroleum Exporting Countries and another group of crude producers led by Russia.
Beginning in December, Opec+ is scheduled to increase oil output by 180,000 barrels a day each month.
Sentiment towards the major airlines was hit, with shares in Wizz Air closing down by 91p, or 6.7 per cent, at £12.76, while easyJet was trading 3.5 per cent lower at 484p.
Meanwhile the price of gold, seen as a safe haven asset, was also trading close to a record high at $2,670 a troy ounce. It touched a high of $2,685 a troy ounce last week.