Oil prices leapt nearly 6% on Friday, with Brent posting its highest weekly gain since February, as investors priced in the possibility that the conflict in the Middle East could widen as Israel began ground raids inside the Gaza Strip.
Israel’s announcement marked a shift from an air war to ground operations to root out Hamas fighters a week after the militant Palestinian group’s deadly rampage in southern Israel.
Brent futures settled up $4.89, or 5.7%, at $90.89 per barrel. U.S. West Texas Intermediate (WTI) crude gained $4.78, or 5.8%, to $87.69 a barrel.
Both benchmarks posted their highest daily percentage gains since April.
Brent also recorded a weekly gain of 7.5%, its biggest such increase since February. WTI climbed 5.9% for the week.
The conflict in the Middle East has had little impact on global oil and gas supplies, and Israel is not a big producer. Investors and market observers, however, are assessing how it could escalate and what it might mean for supplies from nearby countries in the world’s top oil producing region.
Iran’s Foreign Minister Hossein Amirabdollahian on Friday discussed the Israeli-Hamas conflict with the head of the powerful Tehran-backed Lebanese armed group Hezbollah, which has launched its own cross-border attacks on Israel.
If the U.S. tightens enforcement of sanctions on Iran’s oil exports due to any role it may have in the conflict, then Iran’s oil supply could fall.
Saudi Arabia is putting U.S.-backed plans to normalize ties with Israel on ice, two sources familiar with Riyadh’s thinking said, signalling a rapid rethinking of its foreign policy priorities as the conflict escalates.
That may have implications for supply as Saudi Arabia told the White House it was willing to boost oil production early next year to help secure the deal, the Wall Street Journal reported last week.
Also boosting prices was the U.S. move on Thursday to impose the first sanctions on owners of tankers carrying Russian oil priced above the Group of Seven’s price cap of $60 a barrel, an effort to close loopholes in the mechanism designed to punish Moscow for its invasion of Ukraine.
Russia is the world’s second-largest oil producer and a major exporter, and the tighter U.S. scrutiny of its shipments could curtail supply.