Oil Prices Surge Past $100 Amid Middle East Tensions

Brent crude oil prices jumped 4.4% to close at $102.31 per barrel, while U.S. WTI crude rose 2.7% to $92.87, driven by the U.S. deployment of a third aircraft carrier to the Middle East. The USS Theodore Roosevelt, accompanied by Marine Corps ships and up to 10,000 troops, is expected to arrive by late November. Market analysts interpret this as preparation for further escalation with Iran, likely after the U.S. midterm elections.

Despite the increased U.S. military presence, Middle Eastern crude oil exports have returned to approximately 98% of pre-war levels, with Saudi Arabia reactivating its East-West pipeline and tankers resuming operations at Yanbu port. U.S. commercial crude oil inventories also increased last week. However, the price surge, from around $65 before the conflict to over $102 now, reflects a significant risk premium, with over a third of the price attributed to fear.

The article highlights that the true story may lie not just in geopolitical tensions but also in disruptions to refining operations. Ukraine has been targeting Russian refineries, and Moscow has banned diesel exports. Iran and the Houthis have attacked Gulf refining facilities, and Chinese refineries have canceled gasoline and jet fuel shipments. Global diesel and heating oil inventories have fallen significantly, contributing to higher prices for refined products.

In Israel, the price of 95-octane gasoline at self-service stations reached a nominal record of 8.27 shekels per liter. Finance Minister Bezalel Smotrich received legal approval to further reduce fuel excise tax by 0.50 shekels, bringing the price down to 7.77 shekels for one month starting next week. This reduction, however, costs the state approximately 300 million shekels per month, a cost that may eventually be passed back to taxpayers.

The market is pricing in a limited escalation and partial flow of refined products, with a diesel shortage expected for winter. However, a broader, sustained attack on tankers in the Strait of Hormuz is not fully priced in. The risk premium is likely to remain until the USS Theodore Roosevelt arrives, meaning Israeli drivers will continue to bear the cost, either at the pump or through public finances.