(Bloomberg) — Oil and gas markets are set for another volatile week of trading after Israel began its long-anticipated ground invasion of Gaza.
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The biggest risk to crude prices after the invasion remains any escalation to other regional powers. The Middle East supplies about a third of the world’s oil and Iran, which backs Hamas and other regional militant groups, said over the weekend that the incursion “may force everyone to take action.”
Crude was trading on Friday when Israel stepped up ground operations, and West Texas Intermediate surged as much as 3.2% to trade above $85 a barrel. However, that remains below its highest point since the conflict broke out — just above $90 — as so far there’s been no real impact on global supplies.
“Concerns that the war may spill over into a broader regional conflict — with the potential to disrupt oil supplies — do raise the upside risks to oil prices,” said Giovanni Staunovo a commodity analyst at UBS Group AG. “Prices are likely to be supported at the start of the week, although so far there has been no reported disruption in oil supplies.”
The outbreak of the conflict has already led to several weeks of sharp swings in intraday trading. One gauge of oil-market volatility, which measures the pace of price moves, climbed to its highest level since June on Friday.
Increased fighting with Iran-backed Hezbollah in Lebanon over the weekend may add to traders’ unease, while a worst-case scenario for oil markets is any disruption to the Strait of Hormuz, a vital waterway for crude.
Unlike oil supplies, gas markets have already seen production affected.
The Tamar gas field was shut by Israel after the Hamas attacks earlier this month, and though that has been partly offset by an increase in production at the nearby Leviathan field, it continues to underscore some of the risks to regional supply in both markets.
The threat of further escalation remains too. Iran followed…
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