Oil Rallies as Gaza Hospital Blast Ratchets Up Regional Tensions

Oil climbed as a deadly explosion at a Gaza hospital boosted tensions in the Middle East before President Joe Biden’s arrival in the region.

(Bloomberg) — Oil climbed as a deadly explosion at a Gaza hospital boosted tensions in the Middle East before President Joe Biden’s arrival in the region.

West Texas Intermediate rose above $88 a barrel, after swinging more than $2 Tuesday. Following the blast, leaders of Jordan, Egypt and the Palestinian Authority canceled a summit with Biden, complicating the US president’s push to ensure the Israel-Hamas conflict doesn’t widen across the Middle East.

Beyond the region, crude got additional support Wednesday from data showing better-than-expected economic growth in China, the largest oil importer, as well as signs from the US that inventories may have drawn down further.

The global oil market has been rocked by the Middle East crisis, which was ignited by Hamas’ Oct. 7 attack on Israel. Traders are on alert in case Israel opts to launch a ground offensive into Gaza, potentially igniting a broader conflict that may draw in Iran, a key crude supplier, and other states. Tehran supports Hamas, which has been designated a terrorist outfit by the US.

“Clearly a widening of the conflict would bring more supply risks to a market which is already very tight,” said Warren Patterson, head of commodities strategy for ING Groep NV in Singapore. “The most immediate supply risk likely remains around Iranian barrels.”

Tehran has already warned of the scope for escalation of the conflict, saying earlier this week that such an outcome was becoming “inevitable.” Israel, meanwhile, has vowed to eradicate Hamas, massing thousands of troops along the Gaza border ahead of an expected push into the enclave.

Following the hospital blast that left hundreds dead, the Gaza authorities said that it was caused by an Israeli airstrike. Israel, meanwhile, pointed the finger at a failed missile from militant group Palestinian Islamic Jihad. The Pentagon said it didn’t have information on who was responsible.

In Asia, meanwhile, data showed that China’s gross domestic product increased by 4.9% in the third quarter, topping estimates and offering evidence that government efforts to support the economy were starting to gain traction. Apparent oil demand surged by 17% in September. 

Stockpiles will be in focus in the US. The American Petroleum Institute said that inventories at the Cushing, Oklahoma, hub shrank by about 1 million barrels, according to Oilprice.com. If confirmed by official data due later on Wednesday, that would cut them to the lowest level since 2014.

Timespreads continue to signal strength, with the gap between global benchmark Brent’s two nearest contracts at $1.46 a barrel in backwardation. That compares with $1.14 a barrel a month ago.

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