Oil edged higher on Wednesday as investors grappled with the prospect of supply disruptions due to the Middle East turmoil.
Brent crude rose 25 cents, or 0.3%, to $87.90 a barrel by 0550 GMT. U.S. West Texas Intermediate (WTI) crude rose 24 cents, also 0.3%, to $86.21 a barrel.
Brent and WTI surged more than $3.50 on Monday as the military clashes raised fears that the conflict could spread beyond Gaza, but settled lower in Tuesday’s session.
Israel produces very little crude oil, but markets are worried that the conflict could escalate and disrupt Middle East supply, worsening an expected deficit for the rest of the year.
“There is still a risk that this escalates, particularly if there is any Iranian involvement. Under this scenario, stronger enforcement of U.S. sanctions on Iranian oil would tighten up the oil market through 2024,” said Warren Patterson and Ewa Manthey, analysts from ING bank, in a note to clients.
U.S. officials have pointed fingers at Iran as being complicit in the Hamas attack on Israel, but credible evidence of the Islamic Republic’s role has yet to emerge.
Political risk has kept crude prices from falling further.
Israel says it has razed sections of Gaza in retaliation for the Hamas assaults. Keeping markets on edge, powerful Iraqi and Yemeni armed groups aligned with Iran have threatened to target U.S. interests with missiles and drones if Washington intervenes to support Israel.