Sharp rise for oil as Middle East tension escalates

Oil rose sharply Friday on fears that the fighting between Israel and Hamas could destabilize the Middle East and crimp global supply as Iran said a new front to the conflict was possible.

West Texas Intermediate rose above $85 a barrel on Friday and is up about 3% this week. Most of the surge on Monday following the Hamas attack on Israel was unwound in the following days on expectations the conflict would be contained, but Iran’s foreign minister warned that Tehran-backed militants could open a new front in Israel’s war against Hamas if the blockade of Gaza continued.

Crude has had a volatile week. Traders are trying to price in the potential for the war to draw in Iran, a supplier of arms and money to Hamas and any risk to a disruption of wider flows. The result has been large swings in headline prices, as well as some of the market’s more esoteric corners, including options contracts.

“Current trading conditions are clearly for the bold and adventurous ones,” said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd. “The tragic and deteriorating situation in Israel/Gaza also serves us with a reminder that the Middle East risk premium has not abated.”

The biggest increase in US crude stockpiles since February helped push prices down on Thursday, though that was tempered by another drop in supply at the storage hub in Cushing, Oklahoma — the delivery point for WTI. The International Energy Agency said that oil’s recent retreat from near $100 a barrel showed prices had climbed high enough to start eroding demand, though it still sees record world consumption this year.