Oil settles at more than 2-week high after deadly Gaza hospital blast, with Iran reportedly calling for Israel oil embargo

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Oil prices settled Wednesday at their highest in more than two weeks, following a blast at a hospital in Gaza City that left hundreds dead and ratcheted up regional tensions, with Iran reportedly calling for an embargo on selling oil to Israel.

Signs of tightening U.S. crude supplies also helped lift prices.

Price action

  • West Texas Intermediate crude 
    CL00,
    -1.02%
    for November delivery 
    CL.1,
    -1.02%

    CLX23,
    +0.30%
    rose $1.66, or 1.9%, to settle at $88.32 a barrel on the New York Mercantile Exchange. Prices for the front-month contract marked its highest finish since Oct. 3, according to Dow Jones Market Data.

  • December Brent crude 
    BRN00,
    -0.89%

    BRNZ23,
    -0.89%
    the global benchmark, gained $1.60, or 1.8%, to $91.50 a barrel on ICE Futures Europe, the highest since Sept. 29.

  • November gasoline
    RBX23,
    -0.96%
    added 3% to $2.35 a gallon, while November heating oil
    HOX23,
    -0.59%
    fell 1.2% to $3.14 a gallon.

  • Natural gas for November delivery
    NGX23,
    -0.55%
    settled at $3.06 per million British thermal units, down nearly 0.8%.

Market drivers

“Price action shows the risk of trading a potential but unrealized supply disruption,” said Troy Vincent, senior market analyst at DTN.

Oil moved higher “on the back of knee jerk reactions to headlines involving the words ‘oil embargo’ out of Iran that, in reality, should have been ignored and hold very little weight in the broader market,” he told MarketWatch.

An explosion tore through a Gaza City hospital on Tuesday filled with wounded and other Palestinians seeking shelter from ongoing war, with the death toll at 500 and rising, the Hamas-run Health Ministry said. Hamas has blamed the blast on the Israeli military, which in turn said the cause was a misfired rocket from a Gaza-based militant group.

Benjamin Picton, senior macro strategist at RaboResearch told clients in a note on Wednesday that following the tragedy, there’s a rising risk of “further escalation from Iran and Hezbollah, the former vowing a ‘harsh response,’ even including against the U.S., and the latter announcing a day of ‘unprecedented anger’ today.”

As anger spread through Arab region, Jordan canceled a planned Arab summit with President Biden, who touched down in Israel on Wednesday. Jordan’s foreign minister Ayman Safadi told state-run television that the nearly two-week old war was “pushing the region to the brink.”

Read: Biden tells Netanyahu it appears ‘the other team’ caused Gaza hospital blast

Crude prices have risen since the Oct. 7 attack by Hamas on southern Israel on fears that if Iran enters the conflict, the U.S. could increase enforcement of sanctions that would curb exports and further tighten global supplies. Iranian production has crept up to more than 3 million barrels a day, while analysts have pegged exports at around 2 million barrels a day.

Iran’s foreign minister, Hossein Amirabdollahian on Wednesday called for members of the Organization of Islamic Cooperation (OIC) to stop selling oil to Israel oil and expel its ambassadors, Reuters reported. The OIC was holding an emergency meeting in Jeddah on Wednesday.

“While it is very unlikely that other nations will join in Iran’s call for an embargo, even talk of such a move puts focus on Iran’s oil production and exports, which are in grave risk of being taken out of the reliable supply mix,” said Phil Flynn, senior market analyst at The Price Futures Group.

Naeem Aslam, chief investment officer at Zaye Capital Markets, said it’s also important to note that Russian President Vladimir Putin visited China on Wednesday while Biden was in Israel.

“These are significant events from an oil supply perspective and the situation is changing by the hour,” he said.

Read:70% chance Israel-Hamas war spreads beyond Gaza, threatening oil, strategist warns

Also: Biden says he’ll ask Congress for ‘unprecedented support package’ for Israel’s defense

Supply data

Oil also found support after industry data showed a fall in U.S. crude supplies.

The Energy Information Administration on Wednesday reported that U.S. commercial crude inventories fell by 4.5 million barrels for the week ended Oct. 13.

On average, analysts polled by S&P Global Commodity Insights expected the report to show a small decline of 30,000 barrels. The American Petroleum Institute late Tuesday reported that U.S. crude stocks fell 4.4 million barrels last week, according to a source citing the data.

The EIA report also revealed supply declines of 2.4 million barrels for gasoline and 3.2 million barrels for distillates. Analysts forecast inventory decreases of 800,000 barrels for gasoline and 900,000 barrels for distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 800,000 barrels for the week, the EIA said, while U.S. production remained at a record high of 13.2 million barrels a day.

Read: U.S. oil production hits record as Israel-Hamas conflict stokes global supply fears

William Watts contributed to this report

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