Oil prices extended gains on Wednesday after Israel promised to retaliate following Iran’s strike, raising concerns of supply disruptions in the region.
West Texas Intermediate (CL=F) rose more than 2% midday to hover above $71 per barrel. Brent (BZ=F), the international benchmark price, also gained roughly 2% to trade above $74.
The upward moves follow a brief 5% spike during the prior session after Iran fired about 200 ballistic missiles in responseto Israeli ground raids in southern Lebanon targeting Iranian-backed militants.
“Crude trading sharply higher as major short covering by funds continues on the heels of rising Geopolitical issues with Israel now vowing to strike back on Iran,” Dennis Kissler, senior vice president of trading at BOK Financial, said in a note to clients on Wednesday.
Israeli officials said the retaliation could include targeting Iranian oil production facilities, according to an Axios report. Iran produces roughly 3 million barrels of oil per day.
Investors are also concerned with disruption risks stemming from “potential additional declines in Red Sea oil flows,” noted Goldman Sachs analysts on Wednesday. The waterway between Africa and the Arabian Peninsula has been a hotspot for rebel attacks this year in retaliation to the Israel-Hamas war.
The S&P 500 Energy Select ETF (XLE) also extended gains on Wednesday, following a jump of more than 2% in the prior session.
Oil had been on a downward trend amid worries of growing supply and weak demand before the latest geopolitical-fueled jump in prices.
Last week the futures market slumped following a report that OPEC+ leader Saudi Arabia is determined to start unwinding voluntary production cuts later this year even if it leads to lower crude prices.
The Organization of the Petroleum Exporting Countries and their production allies have been cutting output since 2022. Despite the group’s pledges, some members have produced above their quotas this year.
“The market had sold down over the past few months as it became clear, very clear, that OPEC+ members were cheating on their quotas,” Ed Hirs, senior fellow at the University of Houston, told Yahoo Finance on Wednesday.
Year-to-date WTI is up more than 2% year-to-date while Brent is up more 1%.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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