Brent Crude Nears $107 Amid Iran Proposal Rejection, Fuel Prices Eyed in Israel

Global oil prices saw an uptick, with Brent crude rising approximately 1.27% to $105.64 per barrel and West Texas Intermediate climbing 0.76% to $93.11. This follows a volatile previous week where Brent gained 0.4% while WTI dropped 7.9%, influenced by concerns over a potential U.S. diesel export ban aimed at curbing domestic prices.

The price movements are linked to a proposal from Iran, reportedly conveyed via Qatari mediators, suggesting the reopening of the Strait of Hormuz and renewed negotiations with Washington. U.S. President Trump rejected the proposal but indicated expectations of further talks this week, maintaining a diplomatic channel while markets monitor developments concerning the vital waterway and oil tanker traffic. The Strait of Hormuz is crucial for energy markets, with preliminary data showing Middle Eastern crude exports at 12.8 million barrels per day in September, with approximately 7.4 million barrels daily transiting the strait. Any disruption could increase market risk, while improved transit and negotiations might ease crude price pressures.

While rising global oil prices do not automatically translate to identical increases in Israeli gasoline prices, international crude costs are a component of Israel's fuel pricing mechanism. The maximum price for 95-octane gasoline in Israel is determined by the average Mediterranean fuel prices over five trading days at the end of each month, plus marketing costs, taxes, and the dollar-shekel exchange rate, before VAT. Sustained high oil prices leading up to the price update period could pressure local prices, but the final impact also depends on the exchange rate and other pricing factors.

The current maximum price for self-service 95-octane gasoline is 7.75 shekels per liter, following a 0.50 shekel reduction in September. Although daily oil price fluctuations differ from the monthly calculation of Israeli fuel prices, continued high crude levels may increase pressure for the next price update, especially if coinciding with adverse dollar exchange rate movements. Energy market analysts anticipate a potential increase of 25 to 40 agorot per liter in Israel's next fuel price update, possibly pushing the price above 8 shekels per liter if the higher estimate materializes.

The impact of energy prices extends to other sectors, as fuel is a factor in transportation, shipping, and production costs. The Bank of Israel acknowledges energy prices and exchange rates as factors influencing inflation. Previous forecasts from the bank suggested that falling oil prices and a stronger shekel had helped alleviate inflationary pressures. Conversely, sustained high oil prices could exert upward pressure on inflation, particularly if they translate into higher fuel and transport costs, though the extent depends on the magnitude and duration of the price increases and other economic factors. Oil markets remain sensitive to the U.S.-Iran negotiations, traffic through the Strait of Hormuz, and any global supply developments.