Oil prices jump on Israel-Hamas conflict

Oil prices rose sharply on the news that Hamas attacked Israel. However, Eurasia Group Managing Director for Energy, Climate, and Resources Raad Alkadiri says the conflict has "injected a little bit of risk" and uncertainty in the oil market (CL=F), but fundamentally the market is "being shaped by a longer-term outlook for 2024," which includes concerns about demand.

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Video Transcript

AKIKO FUJITA: There are, of course, several reports out there, or I should say, a lot of speculation out there about whether, in fact, this was an attack that was planned beyond Hamas' potential involvement from Iran. Obviously, that would involve oil markets beyond what we're looking at right now. How much of the pricing right now, you think, is already factored in the fact that this is a conflict that could spread beyond Israel and Hamas?

RAAD ALKADIRI: I don't think that's been fully factored in at all. I think, as you say, what you're seeing is jitters. There have been reports. The Iranians have denied it. Other factions have denied that the Iranians were directly involved.

Part of what we're seeing is noise, and part of what we're seeing is a fog of war. And this was a devastating attack on Israel and one that appears to have caught them completely by surprise. And I think for the Israeli government and the security establishment there, there's going to be a temptation to point fingers.

Were we to see this conflict increase, then it immediately brings about worries related to the Straits of Hormuz, whether Iran would operate there. Then, you're talking about 20% of global flows. The kind of price impact that you would see on those worries would be huge.

So really, this has been relatively contained, and worth looking at, I think, in a broader context of a market that has been shaped, and prices that have been shaped by a battle between futures and fundamentals where futures have won out. Concerns about demand next year. Concerns about the global economy next year. That's what brought us down from 97 to 84 last week.

I'd say, we've seen a slight bounce on that. But we've not even recovered halfway towards where we were in late September. So I think were this-- were there to be signs of a significant escalation, were there to be signs of direct confrontation between Israel and Iran, and were there to be real worries about the flows of oil, then the spike is going to be much more significant.

AKIKO FUJITA: A medium-term, that demand picture that you just pointed to, you think that's going to continue to drive the price, or do you think this conflict that has now played out day three here has injected a new risk into the energy patch?

RAAD ALKADIRI: Think it's injected a little bit of risk. But again, look at where prices were just 12 trading days ago, and where we are right now. So I think this crisis has injected a certain amount of uncertainty. You're seeing that, and that's the 3 and 1/2 dollar jump that you saw this morning.

But I think fundamentally, this market is still being shaped by a longer term outlook for 2024. And traders are going to keep a very close eye on the immediate event. So that's what will give you the little ticks at the bottom. But getting to a higher price or recovering, even as I say, to where we were in late September, that's going to require the market sentiment to shift away from focusing on what they see as bearish indicators for next year.