Oil surges 5pc after Israel makes ground raids into Gaza

NEW YORK (Reuters): Oil prices leapt 5% on Friday, with Brent on track for its highest weekly gain since February, as investors priced in the possibility that the conflict in the Middle East could widen as Israel began grounds raids inside the Gaza Strip.

Israel’s announcement marked a shift from an air war to ground operations to root out Hamas fighters a week after their deadly rampage in southern Israel.

Brent futures rose $4.28, or 5%, to $90.28 per barrel as of 1:44 p.m. EDT (1744 GMT). U.S. West Texas Intermediate (WTI) crude gained $4.17, or 5.2%, to $87.08 a barrel.

Brent was set for a weekly gain of 6.8%, its biggest such increase since February. WTI was set to climb about 5.2% for the week, after both surged on Monday.

The conflict has had little impact on global oil and gas supplies and Israel is not a big producer. Investors and market observers, however, are assessing how the conflict could escalate and what it might mean for supplies from nearby countries in the world’s top oil producing region.

Some Gaza residents were abandoning homes on Friday to escape from the path of an Israeli onslaught, after Israel ordered more than a million people to leave the northern half of the Gaza Strip within 24 hours. Hamas told them not to go. read more

Iran’s Foreign Minister Hossein Amirabdollahian on Friday discussed the Israeli conflict with Hamas with the head of the powerful Tehran-backed Lebanese armed group Hezbollah, which has launched its own cross-border attacks on Israel.

“The market is concerned because we don’t know what that means. And could it impact oil?” said Phil Flynn, an analyst at Price Futures Group.

If the U.S. tightens enforcement of sanctions on Iran’s oil exports due to any role it may have in the conflict, then Iran’s oil supply could fall.

Saudi Arabia is putting U.S.-backed plans to normalise ties with Israel on ice, two sources familiar with Riyadh’s thinking said, signalling a rapid rethinking of its foreign policy priorities as war escalates between Israel and Hamas. read more

That may have implications for supply as Saudi Arabia told the White House it was willing to boost oil production early next year to help secure the deal, the Wall Street Journal reported last week.

Also boosting prices on Friday, the U.S. imposed the first sanctions on Thursday on owners of tankers carrying Russian oil priced above the G7’s price cap of $60 a barrel, to close loopholes in the mechanism designed to punish Moscow for its invasion of Ukraine.

Russia is the world’s second-largest oil producer and a major exporter and the tighter U.S. scrutiny of its shipments could curtail supply.

This week, the Organization of the Petroleum Exporting Countries (OPEC) kept its forecast for growth in global oil demand, citing signs of a resilient world economy so far this year and expected further demand gains in China, the world’s biggest oil importer.

“Supply side issues remained the focus in the crude oil market,” Daniel Hynes, senior commodity strategist at ANZ, said in a note on Friday, adding that prices during early trade on Friday rose on the stronger U.S. sanctions enforcement.

Oil prices also shrugged off data released on Friday showing a month-on-month decline in Chinese crude imports.

In U.S. supply, drillers this week added four oil rigs in the biggest weekly rise since March, Baker Hughes said.