Brent crude scores biggest weekly gain in two years as Middle East fears surge

Crude oil futures extended gains on Friday, with U.S. and global benchmark prices surging more than 9% for the week, as Middle East tensions continued to rise in the wake of Iran’s missile attack on Israel earlier this week, as Israel has vowed retaliation and moved forces into Lebanon to fight Iran’s Hezbollah proxies.

Friday’s gains were limited, as President Biden sought to discourage Israel from targeting Iranian oil facilities a day after his remarks seemed to indicate such an attack was possible.

“If I were in their shoes, I’d be thinking about other alternatives than striking oil fields,” Biden told reporters on Friday, adding that he was consulting with Prime Minister Netanyahu’s government as it decides how to respond to Iran’s attack.

But the Biden administration increasingly resembles a spectator regarding Israel’s affairs, with limited insight into what its closest Middle East ally is planning and little influence over its decisions.

A strike on oil infrastructure would raise the risk premium priced into the market, given that Iran is the world’s seventh largest oil producer, but for now further gains appear limited by concerns over global demand and prospects of a supply surplus after Libya resumed production and as OPEC+ prepares to increase output in December.

Front-month Nymex crude (CL1:COM) for November delivery finished Friday +0.9% to $74.38/bbl in its best weekly increase since March 2023, and front-month December Brent crude (CO1:COM) closed Friday +0.5% to $78.05/bbl, its largest one-week percentage gain since October 7, 2022; both benchmarks jumped 9.1% this week.

However, U.S. natural gas futures fell for the week, as temperatures remain higher than normal for most of the country, according to a weather forecast from agricultural research firm DTN; front-month November Nymex gas (NG1:COM) Natural gas futures settled -3.9% Friday to $2.854/MMBtu, down 1.6% for the week.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

A large portion of Iran’s shipments abroad run through a massive terminal on Kharg Island in the Persian Gulf; ClearView Energy Partners recently estimated that an Israeli attack on the facility could add more than $12/bbl to oil prices – equivalent to ~$0.30/gal of gasoline – depending on the damage.

An even bigger fear is whether an Iranian response to such strikes could include an attempted closure of the Strait of Hormuz; ClearView figures a seven-day interruption in shipments could mean a jump in oil prices of as much as $28/bbl, or ~$0.67/gal.

Energy (NYSEARCA:XLE), as represented by the Energy Select Sector SPDR Fund ETF, was the week’s best-performing group, +6.8%.

Top 20 gainers in energy and natural resources: U.S. Goldmining (USGO) +80.9%, Indonesia Energy (INDO) +73.7%, Nabors Industries (NBR) +31.2%, Piedmont Lithium (PLL) +30.3%, W&T Offshore (WTI) +29.4%, Nano Nuclear Energy (NNE) +29.3%, Oklo (OKLO) +26.6%, Enovix (ENVX) +24.4%, Perma-Pipe International (PPIH) +22.7%, Eos Energy Enterprises (EOSE) +19.4%, Vistra (VST) +17.6%, Centrus Energy (LEU) +17.5%, Crescent Energy (CRGY) +16.6%, Calumet (CLMT) +16.5%, TETRA Technologies (TTI) +16.2%, Vital Energy (VTLE) +14.8%, Babcock & Wilcox (BW) +14.7%, Helmerich & Payne (HP) +14.3%, Eco Wave Power (WAVE) +14.2%, Diamondback Energy (FANG) +14%.

Top 3 decliners in energy and natural resources: ZIM Integrated Shipping (ZIM) -21.8%, Novagold Resources (NG) -18.7%, Coeur Mining (CDE) -10.1%.

Source: Barchart.com