The ongoing Israel-Palestine conflict prompts a surge in oil prices as Biden lands in Tel Aviv

18 October 2023, Wednesday
The ongoing Israel-Palestine conflict prompts a surge in oil prices as Biden lands in Tel Aviv

Oil Prices Surge Amidst Middle East Tensions


Oil Prices React to Biden’s Visit to Israel


Oil prices skyrocketed on Wednesday, bouncing back from Monday’s losses and setting a positive tone for the week. The main reason behind this surge is the visit of US President Joe Biden to Israel, which unfortunately coincided with a devastating bombing in Palestine. Biden now faces the challenge of taking a stance in the conflict while trying to ease tensions. Any misstep in his words could potentially escalate the already tense situation between Israel and Hamas.


The US Dollar Faces a Dilemma


The US Dollar (USD) is currently caught between two conflicting factors. On one hand, traders want the value of the US Dollar to rise due to the Middle East tensions. On the other hand, the US economy is showing signs of a possible recession. As a result, the US Dollar is moving within narrow ranges and has been declining for the past three days according to the US Dollar Index (DXY).


Oil Prices and Discounts


Currently, Crude Oil (WTI) is trading at $87.31 per barrel, while Brent Oil is trading at $90.84 per barrel. The Russian Ministry of Finance has set the cut-off price for Russian Rurals Oil at $75 per barrel. This means that countries like India and China can purchase Russian Oil at a $15 discount compared to Brent Oil, despite the sanctions imposed by the EU and US.


Oil Market Updates


Mexico has recently completed its annual Oil-export hedging program. This program allows the nation to sell their oil at a minimum price of $80 per barrel. Additionally, the American Petroleum Institute (API) reported a drawdown of 4.383 million barrels after a significant build of 12.94 million barrels last week.


The US Energy Information Administration (EIA) is expected to release its weekly stockpile change report at 14:30 GMT. Analysts predict a drawdown of only 0.3 million barrels, following last week’s build of 10.176 million barrels.


Risk Premium and Price Predictions


Oil prices are rising as markets factor in a risk premium. The increasing tensions in the Middle East, with neighboring countries pressuring Israel to open its borders and allow refugees to escape, are adding to the possibility of a larger-scale conflict. This risk is influencing the price of oil, and if US stockpiles experience another significant drawdown, prices are likely to surge.


On the positive side, the first resistance level for oil prices is around $88 per barrel, followed by this year’s high at $94. If a substantial squeeze occurs, we could see prices reach $97.11, the highest point recorded in August 2022.


On the downside, traders are preparing for a support level near $78, where buying is expected to increase. However, if prices drop below this level, there is a risk of a sharp decline, potentially causing oil prices to fall below $70 per barrel.