Oil prices surge as market awaits Iran’s response and China’s economic moves

Oil prices surged as markets closely monitored Iran’s potential response to the killing of Hezbollah leader Hassan Nasrallah by Israel, while investors also evaluated China’s efforts to stimulate its economy, the world’s largest oil importer.

Brent crude for December delivery, the most active contract, climbed above $73 per barrel, and West Texas Intermediate was trading above $69. Nasrallah’s death in an Israeli airstrike on Beirut marks a significant blow to Hezbollah and its primary backer, Tehran.

Meanwhile, Israel launched air raids on Houthi targets in the Yemeni cities of Hodeidah and Ras Isa, killing at least four people, a day after the Houthis claimed to have fired a missile at Ben Gurion International Airport near Tel Aviv

Despite escalating tensions in the Middle East, oil prices have remained relatively low this year, as the situation has not yet intensified into a full-blown conflict that could disrupt oil supplies from the region.

Additionally, global oil production remains ample, with OPEC+ planning to ease production cuts, while China’s economic slowdown continues to suppress demand, despite Beijing’s recent economic stimulus.

"The oil market has grown increasingly indifferent to developments in the Middle East," said Warren Patterson, head of commodities strategy at ING Group told Bloomberg.

He added, "The conflict has lasted for over a year without impacting oil production, and OPEC still holds a large amount of spare capacity. Instead, China’s economic measures seem to be providing the market with stability."

Iran, meanwhile, appears in no rush to escalate tensions with Israel, despite the broader conflict that sparked by the war in Gaza between Israel and Hamas, which is also supported by Tehran.

Iranian President Masoud Pezeshkian refrained from committing to a direct attack on Israel, delivering a notably restrained speech at the United Nations.

Actual threats to oil supply

Since the Gaza conflict erupted nearly a year ago, oil traders have been on high alert for potential supply disruptions, particularly amid rising tensions between Israel and Iran.

Although Houthi attacks in the Red Sea have forced some tankers to reroute around South Africa, increasing their journey time, oil production from the region has largely been unaffected.

The recent escalation in the Middle East conflict has triggered higher-than-usual trading activity, with over 55,000 Brent contracts exchanged within the first four hours of the trading session.

However, indicators suggest market liquidity and trading volume have decreased. The Brent crude spot spread—the difference between the nearest two contracts—narrowed to 44 cents per barrel, down from 69 cents the previous week.