Brent Crude Oil Surpasses $80 Barrier

On the 7th,international oil prices surged by nearly 4%,with the global benchmark Brent crude oil price breaking through $80 per barrel,reaching its highest point since late August.

The situation in the Middle East remains high fever,and the market is worried that Israel may strike Iran's key oil facility,Kharg Island,as retaliation.Analysts have indicated that such an attack could lead to Iran interrupting oil supplies through the Strait of Hormuz.It is worth mentioning that the Strait of Hormuz is one of the world's most sensitive oil export chokepoints.

The market is waiting to see how Israel will respond to Iran.

According to CCTV News,the spillover effects of the recent Israel-Palestine conflict have impacted the entire Middle East,with regional instability continuously intensifying.Due to Israel's "targeted elimination" of Lebanese Hezbollah leader Nasrallah,the conflict between Israel and Lebanon has suddenly intensified.On the night of the 6th local time,the Israeli Defense Forces launched air strikes on several Hezbollah targets in the southern suburbs of Beirut,the capital of Lebanon.

Over the past week,as Iran's missile attacks on Israel continue to ferment,WTI and Brent crude oil have surged by nearly 9%,setting the largest single-week increase since 2023.

Iran is the third-largest crude oil producer in OPEC,following Saudi Arabia and Iraq,accounting for 12% of the world's total reserves.Industry statistics show that Iran's oil production rose to a six-year high of 3.7 million barrels per day in August,with exports reaching 1.8 million barrels per day.Kharg Island is now widely regarded as a target for Israeli retaliation.Most of Iran's crude oil exports are conducted through Kharg Island,located in the northeastern part of the Persian Gulf,which is sometimes referred to as Iran's "oil island." The market currently believes that the possibility of an Israeli strike "cannot be underestimated," which would deal a devastating blow to Iran's economy.

Last week,U.S.President Biden,when discussing the option of attacking Iran's oil facilities,suggested that Israel should not do so.Biden also stated that he opposes Israel's attack on Iran's nuclear facilities.

Crude oil broker PVM Oil Associates Senior Market Analyst Tamas Varga said in a recent interview with First Financial Daily reporters that as the Israel-Palestine conflict approaches its first anniversary,the fear of war spreading has been reignited.Now,the conflict risk between Israel and Iran has become the biggest driver of oil prices.He further analyzed that historical factors make it difficult for all parties to find an acceptable solution in the short term.Secondly,due to its proximity to key oil-producing areas,the development of the event has huge political and economic significance,which will resonate throughout the financial and oil markets.

Helima Croft,Head of Global Commodity Strategy at RBC Capital Markets,said that it is currently unclear what form of retaliation Israel will take.If Israel attacks Kharg Island,the impact on the oil market will be huge,as 90% of Iran's crude oil exports pass through Kharg Island."We must see what the Israelis will do and how Iran will respond.But for a long time,we have certainly not been closer to a regional war," she said.

Bullish option game heating up.Option trading data indicates that a significant amount of capital is beginning to bet on the possibility of oil prices quickly reaching $100 per barrel.This speculation is driven by the potential for the escalating tensions between Israel and Iran to trigger a broader conflict in the Middle East,threatening the flow of crude oil.

Dow Jones Market Data discovered that last Thursday,the number of open contracts for the November $100 call options at the Chicago Board Options Exchange reached an all-time high of 18,628.The number of open contracts for the December $100 call options hit 41,424,setting a new high since September 20th of this year."In most cases,call options with a strike price of $100 or higher represent a scenario on the fringes of sanity," commented Tom Kloza,head of global energy analysis at Dow Jones OPIS.

Phillip Streible,Chief Market Strategist at Blue Line Futures,stated,"As tensions in the Middle East approach boiling point,traders are weighing the consequences of a shutdown of Iran's oil infrastructure and what would happen if Iran were to close the Strait of Hormuz.This has led both hedgers and speculators to lean towards a cheaper approach,using short-term call options to prepare for the worst-case scenario of crude oil prices above $100 per barrel."

The Strait of Hormuz,serving as a maritime passage between the Persian Gulf and the Gulf of Oman,is the world's most critical oil transportation route.Data from the U.S.Energy Information Administration (EIA) shows that in the first half of 2023,the average oil flow through the strait was 21 million barrels per day,accounting for approximately 21% of the global consumption of petroleum liquids.

The oil-producing countries' alliance OPEC+,which has a substantial amount of spare production capacity,is seen as an alternative crude oil supplier but also faces supply chain challenges.

Rob Thummel,Portfolio Manager at Tortoise Energy Infrastructure Total Return Fund,an energy asset management company,said,"If there is a disruption in Iran's oil production and exports,other OPEC countries can relatively quickly produce more oil.The difficulty lies in the fact that potential oil suppliers to fill the gap could be Saudi Arabia or Kuwait,and this oil would also need to be transported through the Strait of Hormuz." Thummel indicated that the United States is keenly aware of the importance of the Strait of Hormuz and may take all necessary measures to ensure the strait remains open.