Oil prices extend gains as Israel promises retaliation after attack on Iran

Oil prices extend gains as Israel promises retaliation after attack on Iran

Oil prices extended gains on Wednesday after Israel vowed to retaliate following the attack in Iran, raising concerns about supply disruptions in the region.

West Texas Intermediate (CL=F) rose more than 2% midday to settle above $71 a barrel. Brent (BZ=F), the international benchmark price, also gained about 2% to trade above $74.

The upside follows a brief 5% rise during the previous session after Iran fired about 200 ballistic missiles in response to Israeli ground attacks in southern Lebanon against Iranian-backed militants.

“Crude oil trading has risen significantly as large short-selling by funds continues due to rising geopolitical issues, with Israel now vowing to strike back against Iran,” Dennis Kissler, senior vice president of trading at BOK Financial, said in a note to clients on Wednesday.

According to an Axios report, Israeli officials said the retaliation could include attacks on Iranian oil production facilities. Iran produces about 3 million barrels of oil per day.

Investors are also concerned about disruption risks arising from “potential further declines in Red Sea oil flows,” analysts at Goldman Sachs noted on Wednesday. The waterway between Africa and the Arabian Peninsula has been a hotspot for rebel attacks this year in response to the war between Israel and Hamas.

The S&P 500 Energy Select ETF (XLE) also extended gains on Wednesday after rising more than 2% in the previous session.

The British-flagged crude oil tanker ENERGY COMMANDER is moored off the coast of the Mediterranean port of Limassol. Cyprus, Monday April 22, 2024. Oil prices fall more than 3% as traders factor in the risk of war between Iran and Israel. (Photo by Danil Shamkin/NurPhoto via Getty Images)The British-flagged crude oil tanker ENERGY COMMANDER is moored off the coast of the Mediterranean port of Limassol. Cyprus, Monday April 22, 2024. Oil prices fall more than 3% as traders factor in the risk of war between Iran and Israel. (Photo by Danil Shamkin/NurPhoto via Getty Images)

The crude oil tanker ENERGY COMMANDER lies off the coast of the Mediterranean port of Limassol. Cyprus, Monday April 22, 2024. (Danil Shamkin/NurPhoto via Getty Images) (NurPhoto via Getty Images)

Oil prices had been in a downward trend before the recent geopolitically driven price increase due to concerns about growing supply and weak demand.

Last week, the futures market plunged after reports that OPEC+ leader Saudi Arabia was committed to starting unwinding voluntary production cuts later this year, even if it would lead to lower crude oil prices.

The Organization of the Petroleum Exporting Countries and its production allies have been cutting production since 2022. Despite the group’s commitments, some members have produced above their quotas this year.

“The market had seen a sell-off over the last few months as it became clear, very clear that OPEC+ members were cheating on their quotas,” Ed Hirs, a senior fellow at the University of Houston, told Yahoo Finance on Wednesday.

WTI is up more than 2% year-to-date, while Brent is up more than 1%.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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