Oil Rallies on Report Iran Plans to Attack Israel Via Proxies

Alex Longley, Mia Gindis and Maggie Eastland
2 min read

(Bloomberg) -- Oil rose on a report that Iran may be preparing to attack Israel from Iraqi territory in the coming days, bringing the market’s focus back to potential supply disruptions from the war in the Middle East.

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West Texas Intermediate surged as much as 3.2% before paring gains to trade near $70 a barrel, while global benchmark Brent rallied above $73. Iran is planning a strike through militias that it backs in Iraq, with the assault expected to be carried out using drones and ballistic missiles, Axios reported, citing two Israeli sources it didn’t identify.

While the report on Thursday initially caused a spike in futures prices, the advance has faded as traders questioned likelihood and extent of a possible flare-up in the conflict.

Israel and Iran are in a “quasi-choreographed dance of trying to project toughness without provoking an all-out war, but nonetheless, the day-to-day headlines surrounding the Middle East have been a big deal,” said Pavel Molchanov, an analyst at Raymond James & Associates Inc.

Also limiting crude’s gains were US economic data that showed the nation added fewer jobs than expected last month, though the figures were distorted by storms and labor disputes.

Oil has clawed back some of the ground it lost at the start of the week, which followed Israel’s limited attack on Iran in response to an Oct. 1 missile barrage. Some analysts warned that the market had “relaxed too quickly,” and there were signs on Friday that oil options markets are once again pricing in large premiums for bullish call contracts.

Developments in the Middle East this week had been pointing to a potential easing of hostilities, with Israel also considering a US-led proposal to end the conflict in Lebanon. Still, the Israeli military said the nation would hit back “very hard” should Iran attack again.

The oil market has a number of key events on the horizon, including the US election, a meeting of China’s top legislative body next week and a looming decision from OPEC+ on whether to start gradually reviving production starting in December. Macquarie analysts said in a note that market participants are underestimating US production, which hit a new record Thursday.

China’s manufacturing activity, meanwhile, unexpectedly picked up in October despite a weeklong holiday. The readings offer a sign of stabilization after Beijing unleashed stimulus to shore up the economy. In another sign of improved confidence, residential property sales in the nation rose last month, the first year-on-year increase of 2024.

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