Oil set for second week of gains on Gaza contagion fears

[October 20, 2023]  By Paul Carsten

LONDON (Reuters) -Oil prices gained more than $1 on Friday and were on track to rise for a second week on heightened fears that the Israel-Gaza crisis may spread in the Middle East and disrupt supply from one of the world's top-producing regions.

Brent crude futures was up $1.23 to $93.61 a barrel by 1116 GMT. U.S. West Texas Intermediate crude was at $90.60 a barrel, also up $1.23. The front-month November contract expires on Friday.

The more active December WTI contract was up $1.37 at $89.74 a barrel.

Both front-month contracts are set to record a second weekly gain as an explosion at a Gaza hospital this week and an anticipated ground invasion by Israeli troops heightened fears of the conflict spreading in the Middle East.

"Signs that an Israeli ground offensive in the Gaza Strip is imminent have been pushing oil prices up significantly since yesterday. A barrel of Brent now costs $93 again. So far, however, the supply situation on the market has not changed," Commerzbank analysts wrote in a note on Friday.

Oil prices are "likely to remain well supported, especially as the oil market is significantly undersupplied at present", they said.

Israeli Defence Minister Yoav Gallant told troops gathered at the Gaza border on Thursday that they would soon see the Palestinian enclave "from inside", suggesting an expected ground invasion could be nearing.

Adding to concerns about the potential broadening of the conflict, the Pentagon said the U.S. had intercepted missiles fired from Yemen toward Israel.

A person puts gas in a vehicle at a gas station in Manhattan, New York City, U.S., August 11, 2022. REUTERS/Andrew Kelly/File Photo

Oil price are also supported by forecasts of a widening deficit in the fourth quarter after top producers Saudi Arabia and Russia extended supply cuts to the end of the year and amid low inventories especially in the United States.

Washington is seeking to buy 6 million barrels of crude for delivery to the Strategic Petroleum Reserve in December and January, as it continues its plan to replenish the emergency stockpile, the U.S. Department of Energy said on Thursday.

Separately, a temporary lifting of U.S. oil sanctions on OPEC member Venezuela is unlikely to require any policy changes by the OPEC+ producer group for the time being as a recovery in production is likely to be gradual, OPEC+ sources told Reuters.

"Venezuelan oil production will not be a significant factor in shaping the global oil balance in the foreseeable future," Tamas Varga of oil broker PVM wrote in a note.

(Reporting by Paul Carsten in London and Florence Tan and Sudarshan Varadhan; editing by Shri Navaratnam and Jason Neely)

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