By Shariq Khan
NEW YORK (Reuters) – Oil prices fell more than 3% higher on Monday, with Brent breaching $80 a barrel for the first time since August, as increased risk of a region-wide war in the Middle East pushed investors out of record bearish positions they had collected last year, pushed. month.
futures rose $2.88, or 3.7%, to settle at $80.93 a barrel. U.S. West Texas Intermediate futures rose $2.76, or 3.7%, to $77.14 a barrel.
Last week Brent rose more than 8% and the WTI advanced more than 9% week-on-week, the highest level in more than a year, after Iran’s October 1 missile barrage on Israel raised concerns that the Israel’s response would target Tehran’s oil infrastructure.
If that happens, oil prices could rise another $3 to $5 a barrel, said Andrew Lipow, president of Lipow Oil Associates.
Rockets fired by the Iran-backed Hezbollah reached Israel’s third-largest city, Haifa, early on Monday. Israel, meanwhile, appeared poised to expand ground incursions into southern Lebanon on the first anniversary of the Gaza war, which has spread the conflict across the Middle East.
“There are growing concerns that the conflict could escalate further – not only endangering Iran’s production of 3.4 mmbopd (million barrels of oil per day) – but also causing further disruptions to regional supplies,” Tudor analysts said. Pickering, Holt. & Co wrote on Monday.
Monday’s gains were likely driven by money managers taking bearish bets on the rising risk of oil supply disruption in the Middle East, UBS analyst Giovanni Staunovo said.
Hedge funds and money managers had racked up record bearish bets on oil futures until mid-September on the weakened demand outlook, especially in China, oil’s biggest importer.
“There is a lot of shorting in the market that started last week and continues,” said John Kilduff, partner at Again Capital in New York. “It’s buy now, ask questions later,” he said.
Still, he warned that the fear-driven rally leaves oil prices facing a significant downturn if Israel decides not to attack Iran’s oil infrastructure.
That would drop oil prices by between $5 and $7 a barrel, Kilduff and Lipow estimated separately.
“Until a week ago, I would have thought we’d be testing low $60s in oil,” said Brent Belote, founder of commodities-focused hedge fund Cayler Capital.
Demand remains weak and the Organization of the Petroleum Exporting Countries has sufficient spare capacity to offset any disruptions to Iranian exports, Belote added.
OPEC and allies including Russia, collectively known as OPEC+, will start increasing production from December, following cuts in recent years to support prices due to weak global demand.
However, Brent crude prices will likely need to be closer to $90 or higher before OPEC+ can increase supply, Lipow said.
