Oil Prices React to Iran-Israel Tensions

On Friday, oil markets reacted with volatility to escalating tensions between Iran and Israel. The day began with a surge in oil prices, driven by reports of an Israeli airstrike on Iran. Brent Crude, the international benchmark, soared by nearly 2% to just under $88 per barrel, while the U.S. benchmark West Texas Intermediate also rose by about 2% to over $83.50 per barrel.

However, this initial spike was short-lived. Iran’s state media quickly downplayed the impact of the airstrikes, leading to a swift drop in prices. Brent Crude retreated to around $87.50 per barrel, representing a marginal 0.5% increase, while West Texas Intermediate also tapered off, settling just above $83.50 per barrel.

The conflict in the Middle East has raised concerns about the stability of the oil market. AAA spokesperson Andrew Gross noted that the “situation overseas with the war in the Middle East and Ukraine has the oil market on edge.”

While higher oil prices often translate to increased gasoline prices, analysts believe the effects on consumers may be delayed. Despite the national average price for gas reaching $3.69 per gallon, its highest since October, experts suggest that several factors could mitigate further increases.

Patrick De Haan, head petroleum analyst for GasBuddy, anticipates gas prices could soon reach $3.70 per gallon. However, he also suggested that the return of U.S. oil refineries from maintenance and Iran’s apparent downplaying of the Israeli attack could signal a potential end to rising prices at the pump.

A positive sign for gas prices has been an increase in crude oil inventories, which rose by 2.7 million barrels this week to approximately 460 million barrels. While this is still 6 million barrels below last year’s levels, according to the Energy Information Administration, it indicates a potential easing of supply concerns.

Gasoline demand in the U.S. declined slightly from 8.84 million barrels in the week ending April 5 to 8.81 million barrels last week, according to EIA data, and is slightly below last April’s levels. Gross anticipates that the national average gas price “may waffle a bit with small increases, some flat days, and even some price dips” as a result.

In the background, tensions between Iran and Israel have escalated, with Israel reportedly launching limited airstrikes in Iran early Friday, following Iran’s recent drone and ballistic missile strike on Israel. The two nations have been at odds, with Iran threatening “fierce and severe” retaliation for any invasion by Israel. World leaders have urged both sides to de-escalate the situation.