Israel-Hamas war: Can crude oil prices shoot up beyond the $100 per barrel mark? Experts weigh in

Crude oil prices saw a sharp rise on Monday as concerns over supplies grew stronger thanks to the ongoing military clashes between Israel and the Palestinian Islamist group Hamas. Brent Crude prices rose over $3 per barrel to trade near the $87 per barrel mark in Monday's trade.

Crude prices last week corrected about 9 per cent from the year-high after oil cartel Opec proposed to keep output cuts steady at its October 5 meeting. As analysts fear that geopolitical tensions in West Asia could escalate, oil prices may remain elevated for some time.

Also Read: Oil soars as Hamas’ attack on Israel fans Middle East tensions

However, they do not think crude oil prices could sharply rise and sustain at elevated levels even though the Israel-Palestine issue remains a risk. If the war continues for a longer period, crude oil prices may see some gains but it is unlikely that they will go beyond the $100 per barrel mark.

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As Mint reported earlier, an oil rally could be driven by short-covering by hedge funds that hold significant short positions. ICE offers futures trading in West Texas Intermediate (WTI), a light sweet crude grade, where managed money held net shorts of 27.38 million barrels as of a 3 October report. Actual users and hedgers also were net short by 26.6 million barrels while “others” were long by 72.6 million barrels, according to the US derivatives regulator Commodity Futures Trading Commission.

Deven Choksey, managing director of KR Choksey Shares and Securities said, “Opec nations are mindful of not increasing the oil price beyond 10-12 per cent as they have an understanding in practice with the US to ensure that oil prices are not increased beyond certain levels. Thus, under the knee-jerk reaction to this attack, prices may go up by 10-12 per cent in the near term.”

“The issue is that if the war persists for long, which is say, even a fortnight onwards, then the oil dynamics will change. Brent had crossed the $90 mark but then retreated. Now we can use the 90 number to be the threshold beyond which there is trouble for the world economy. India can get affected if the price remains high due to further supply disruptions," said Madan Sabnavis, Chief Economist, Bank of Baroda.

Also Read: Nifty 50, Sensex decline on Israel-Hamas war: 5 factors that weigh on market sentiment

Shrey Jain, the founder and CEO of SAS Online believed in the immediate aftermath of this attack, we might see a sharp 10-12 per cent spike in oil prices. However, it's highly unlikely that these heightened prices will persist in the long run, indicating a short-term fluctuation.

Jain, however, underscored that if the conflict between Israel and Palestine escalates further, spreading across the wider Middle East and drawing attention to Iran, a major oil producer and Hamas supporter, it could seriously dampen global risk appetite. This, in turn, might weaken global markets significantly.

OPEC nations are keeping a close eye on things. Jain pointed out that OPEC nations are careful not to let oil prices rise beyond 10-12 per cent due to their understanding of the USA. This mutual agreement helps in ensuring that oil prices don't go haywire, maintaining stability in the market, said Jain.

Also Read: Israel-Palestine War: Impact on global economy, India-Israel trade, financial markets

Rahul Kalantri, VP of commodities at Mehta Equities believes that the surge in crude oil price is likely to be temporary as neither Israel nor Palestine is a major oil supplier and, so far, the conflict has not directly threatened any major oil production or supply facilities.

However, Kalantri added if this war is prolonged for a longer period then it might affect crude oil prices in the short term because the conflict is geographically close to major oil-producing and exporting nations.

Also Read: Gold, silver price jumps amid rising Israel Palenstine conflict. Opportunity to buy?

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.