(Bloomberg) — Oil jumped on intensifying concerns about conflict in the Middle East, with Brent rallying above $90 a barrel in a sudden move higher.
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The global benchmark surged, reversing an early drop, after unverified reports of explosions in Iran, Syria and Iraq. Israel told the US on Thursday it planned a response against Tehran in 24 to 48 hours, according to two US officials.
Traders have been girding all week for an Israeli response to the Islamic Republic’s unprecedented missile and drone attack last weekend, with the rhetoric between the two escalating as Iran warned against striking its nuclear facilities. Gold also spiked in Friday’s trading, nearing a record.
“Unconfirmed reports of strikes in the Middle East may suggest that worst fears have come true,” said Warren Patterson, head of commodities strategy for ING Groep NV in Singapore. “Depending on the nature of strikes, we are moving closer toward a scenario where supply risks become a reality, and so the market will likely have to start pricing in an even larger risk premium.”
Crude has rallied this year, with gains driven by the worsening hostilities in the Middle East, as well as OPEC+ supply cuts that have tightened the market. The region accounts for about a third of global crude supplies. Higher prices, if sustained, would boosts risks for the global economy and pose a challenge for central bankers as they seek to tame inflation.
Read More: What Are Israel’s Options for Retaliating Against Iran’s Strike?
Among the reports, ABC News, citing an unidentified US official, said Israeli missiles hit a site in Iran. In the country, the semi-official Fars news agency reported an explosion being heard in the central city of Isfahan. Separately, the Mehr news agency said flights had been suspended in Tehran, Isfahan and Shiraz.
“We continue to highlight the heightened risk that this war will move up the escalation ladder,” RBC Capital Markets LLC analysts including Helima Croft said in a note before crude’s spike. “Oil supplies could be caught in the cross-hairs of this metastasizing conflict.”
Trading volumes also spiked, with more than 170,000 lots of Brent and nearly 190,000 of WTI traded within the session’s first four hours, far more than is usual. There were also active trading of Brent June call options — which profit when prices gain — centered around strike prices of $90 and $95. The premium of call options over put options also surged to the most since early 2022.
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–With assistance from Elizabeth Low.
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