Crude oil price nears $80 amid Middle East unrest

Oil prices continued to rise, yesterday, with Brent approaching the $80 mark, building on last week’s sharpest increase since early 2023.

The gains were fuelled by concerns over a potential escalation in Middle East tensions and possible disruptions to exports from this key oil-producing region. Brent crude futures increased by $1.09 (1.4 per cent), reaching $79.14 per barrel as of 1316 GMT.

Meanwhile, Israel appeared ready to intensify ground operations in southern Lebanon, coinciding with the first anniversary of the Gaza war, which has further fuelled conflict across the Middle East. This situation heightened fears of a broader war potentially involving the United States and Iran, Israel’s ally and adversary, respectively.

The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as OPEC+, plan to increase production in December, following recent cuts to support prices amid weak global demand.

While OPEC+ holds sufficient spare capacity to counter any disruption to Iranian supply, analysts warn that it could face challenges if Iran retaliates by targeting oil infrastructure in neighbouring Gulf nations. At the onset of the Middle East conflict a year ago, Brent crude was trading at $88.15 per barrel.

The rise in oil prices to almost $80 could further strengthen the fiscal position since it is above the budget benchmark oil price in the 2024 budget. It could also strengthen the naira after recent depreciations in the past few months.

The naira has hovered around N1540 to a dollar on the official market and weaker on the parallel market.

Last month, Brent crude oil futures dipped below $70 per barrel for the first time since December 2021, signalling a new decline driven by robust supply, demand concerns, and extensive speculative selling.

The global benchmark slid by 2.8 per cent. However, disruptions in U.S. supply caused by Tropical Storm Francine offered some support to prices. Brent futures declined by 48 cents (0.67 per cent), while U.S. West Texas Intermediate (WTI) crude dropped 42 cents (0.6 per cent) to $68.29 per barrel. Both benchmarks saw gains of one per cent, yesterday.

Oil prices remain on course for more gains, despite some analysts’ predictions that what is reportedly an imminent Israeli attack on Iran may not be severely disruptive to oil supplies unless Iran targets the Strait of Hormuz.

Some pundits have suggested that Israel could strike a key export artery for Iranian oil, among other oil and gas targets that Washington has asked Tel Aviv to avoid.