Oil futures: Brent surges past $80/b, mkt waits on Israel response

Quantum Commodity Intelligence – Crude oil futures opened the week sharply higher with investors again left on tenterhooks regarding Israel's response to the barrage of missiles fired from Iran last week.

Front-month Dec24 ICE Brent futures were trading at $81.12/b (2000 GMT), compared to Friday's settle of $78.05/b and registering fresh six-week highs of $81.16/b.

At the same time Nov24 NYMEX WTI was trading at $77.33/b versus Friday's settle of $74.38/b.

Markets were poised for Israeli strikes, potentially starting this week, making for volatile swings amid headline-driven pricing. 

Prices have surged around 15% since last Tuesday's low and the attack from Iran, but Israel has so far held back from implementing its widely-flagged response, which could include targeting industrial and military infrastructure.

Media reports last week indicated that Israel could strike oil and gas facilities, including the key Kharg Island export terminal, in a move to cut off Tehran's primary source of overseas revenue.

"Such a move would upset its international partners, while a disruption to Iran's oil revenue would likely leave it with little to lose, potentially provoking a more ferocious response," said ANZ commodity strategist Daniel Hynes.

The Axios political website reported that President Biden on Friday signalled he would oppose an Israeli strike on Iran's oil facilities, adding that while the US supports an Israeli military response against Iran it believes any retaliation should be measured.

Iran's production has recently moved up to six-year highs of more than 3.3 million bpd, including over 1.5 million bpd exported primarily to China, which analysts have noted could easily replace the 6 million bpd spare capacity held by OPEC.

Spike

However, if OPEC did not respond to any lost Iranian output, then oil prices would likely spike.

"If you were to see a sustained 1 million bpd drop in Iranian production, then you would see a peak boost to oil prices next year of around $20/b," Daan Struyven of Goldman Sachs commodities research told CNBC news.

A wider escalation could threaten the Strait of Hormuz, which Iran has previously threatened to blockade, potentially disrupting millions of barrels of daily oil exports from the Middle East Gulf.

For now, Israeli forces continued to exchange fire with Hezbollah, as Beirut was pounded over the weekend while the northern city of Haifa came under return fire.

The rally has also been underpinned by financial players pouring back into the oil sector, as the Weekly Commitment of Traders data showed funds added more than 9 million barrels of Brent long positions.

Elsewhere, Hurricane Milton was moving "erratically" through the Gulf of Mexico toward Florida on Monday, the US National Hurricane Center said.

Monday's tracking models take the Category 5 hurricane well to the south of oil and gas platforms to the south of Louisiana, but operators were closely monitoring the situation.

As of Monday Chevron had shut its 65,000 bpd Blind Faith platform located 160 miles southeast of New Orleans, but the company said other installations had not been impacted.