Key Points:
Oil prices continued to rise during early Asian trading on Friday, with the Brent crude oil (Symbol: UKOUSD) reaching $77.71 per barrel and the U.S. West Texas Intermediate (WTI) (Symbol: USOUSD) climbing to $73.79.
Picture: Oil prices inch higher on concerns over Middle East conflict, as observed on the VT Markets app.
Both benchmarks are on track for weekly gains of about 8%, primarily due to escalating tensions in the Middle East.
The market is reacting to President Joe Biden’s comments about possible U.S. strikes on Iranian oil facilities in response to the missile attacks on Israel, which sent prices up by 5% earlier this week.
With the Middle East supplying about one-third of the world’s crude oil, any conflict in the region tends to raise concerns about disruptions to oil flow.
Traders are increasingly pricing in the risk of supply cuts, especially from Iran, which continues to produce around 4 million barrels per day under U.S. sanctions.
Despite geopolitical concerns, oil prices have been somewhat capped by the assurance of spare capacity by OPEC. While bearish investors are unwinding their positions, the market remains balanced by the fact that global crude supplies have not yet been disrupted.
The ability of OPEC to increase production, if needed, has helped ease fears of major supply shortages.
Read more on: How to Trade Oil
Further, in Libya, the resolution of a dispute between its eastern-based government and the Tripoli-based National Oil Corporation has led to the reopening of key oilfields and export terminals, adding to the global supply pool.
Libya, which produced 1.3 million barrels per day last year, is expected to boost output following this settlement.
Traders are cautious as the situation in the Middle East develops. While some may see opportunities for short-term gains amid heightened volatility, many are holding back from building aggressive long positions, given the ability of OPEC to fill supply gaps if needed.
Oil prices are expected to remain volatile, with potential for short-term spikes, but a sustained rally seems unlikely unless the conflict escalates further and disrupts global supply.
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