(Bloomberg) — Oil rose for a second day after Iran fired about 200 ballistic missiles at Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation and raising risks to the region’s crude supply.
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Global benchmark Brent climbed above $75 a barrel after briefly rising more than 5% on Tuesday following the Iranian attack, which was preceded by a US warning. Options volatility rose to an 11-month high as traders hedged against the possibility of rising oil prices.
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Crude’s rally reflects investors pricing in a new risk premium for the world’s most important commodity as the Middle East accounts for about a third of global supply. Havens’ assets, including bonds, gold and the US dollar, have also risen following the latest escalation of the conflict.
Although Israel and Iran have been at odds since the outbreak of war in Gaza against Tehran-backed Hamas almost a year ago, previous spikes have been short-lived due to the lack of actual oil production disruptions. According to a Bloomberg survey, Iran pumped about 3.3 million barrels per day in September.
“While the geopolitical risk premium rose on Tuesday, our instruments suggest it remains subdued,” wrote Goldman Sachs analysts including Yulia Zhestkova Grigsby. “As a result, oil prices remain sensitive to risks of supply disruption.”
Iran and Israel exchanged attacks earlier this year, with Tehran in April firing a barrage of missiles and drones that were marked in advance and caused little damage. Israel carried out a limited, retaliatory attack on Iran a few days later. Oil ended that week more than 3% lower.
While many participants have “faded” the risk of supply disruptions, energy infrastructure could become a target for both sides, RBC Capital Markets LLC said in a note. Tehran and its allies “could potentially focus on energy operations in other parts of the region to internationalize costs if the current crisis turns into an all-out war,” it added.
Meanwhile, OPEC+ will hold an online meeting of a technical panel – the Joint Ministerial Monitoring Committee – later Wednesday to assess global oil markets. The group is preparing to revive some of the halted production starting in December, after initially postponing that plan.
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–With help from Weilun Soon.
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