Israel-Hamas War: Oil rallies as Gaza hospital blast ratchets up regional tensions

Oil rallied as a deadly explosion at a Gaza hospital boosted tensions in the Middle East before President Joe Biden’s arrival in the region.

West Texas Intermediate rose above $88 a barrel, after swinging by more than $2 on Tuesday. Following the blast, leaders of Jordan, Egypt and the Palestinian Authority canceled a summit with Biden, complicating the US president’s push to ensure the Israel-Hamas conflict doesn’t widen across the Middle East.

The global oil market has been rocked by the regional crisis, which was ignited by Hamas’ Oct. 7 attack on Israel. Traders are on alert in case the fighting spreads beyond Gaza, potentially embroiling Iran, which supports Hamas. A wider conflict could endanger crude flows, further tightening what was an already-stretched oil market following months of OPEC supply cuts. 

“Clearly a widening of the conflict would bring more supply risks to a market which is already very tight,” said Warren Patterson, head of commodities strategy for ING Groep NV in Singapore. “The most immediate supply risk likely remains around Iranian barrels.”

Tehran has already warned of the scope for escalation of the conflict, saying earlier this week that such an outcome was becoming “inevitable”. Israel, meanwhile, has vowed to eradicate Hamas, massing thousands of troops along the Gaza border ahead of an expected ground invasion of the enclave.

Following the hospital blast that left hundreds dead, the Hamas-controlled Gaza authorities said that it was caused by an Israeli airstrike. Israel, meanwhile, pointed the finger at a failed missile from militant group Palestinian Islamic Jihad. The Pentagon said it didn’t have information on who was responsible.

Beyond the Middle East, oil stockpiles will be in focus. In the US, the American Petroleum Institute said inventories at the Cushing, Oklahoma, hub shrank by about 1 million barrels, according to Oilprice.com. If confirmed by official data later Wednesday, that would cut them to the lowest since 2014.

Timespreads continue to signal strength, with the gap between global benchmark Brent’s two nearest contracts at $1.45 a barrel in backwardation. That compares with $1.14 a barrel a month ago.