Crude oil surged 3.1% higher Thursday on renewed fears about Middle East tensions following the latest flare-up between Israel and Iran.
Light, sweet crude for August delivery settled at $92.66 a barrel on the New York Mercantile Exchange, up $2.79. Brent crude on the ICE futures exchange settled at $107.80 a barrel, up $2.64.
Prices rose for the seventh straight session after Israel accused Iran of orchestrating a bombing attack at a resort in Bulgaria, frequented by Israelis, that killed at least six people and injured 30 others. Israeli Prime Minister Benjamin Netanyahu said Israel would "respond with force."
The possibility of a clash between the two Middle Eastern nations has rippled through the oil markets. Any conflict could escalate throughout the oil-producing region. Also, in the past, when Iran has been threatened, Iranian officials said they would close the Strait of Hormuz, a critical waterway for oil shipments.
"Probably the overriding concern is that there will be a war in Iran that will disrupt the Strait of Hormuz," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago, a brokerage firm. He added that the chance of disrupted oil flows put a "risk premium" on crude prices.
Analysts and traders also said the market was concerned that Syrian rebels ruptured the inner circle of Syrian President Basha al-Assad Wednesday, killing three high-level officials with a bomb blast. That has fueled speculation that the much-criticized regime may be close to falling.
Although Syria is not a major oil producer, the country's proximity to other major oil producers has perturbed the market. The current Syrian regime is also allied with Iran.
Trader John Kilduff, with Again Capital, called it "A rough day out in the Middle East."
Mr. Kilduff said the prospect of the fall of the Syrian regime has also troubled Iran, which would lose a major ally in the region if the Assad regime falls. "There's a real apprehension about what would their (Iran's) act of desperation be," he said.
Analyst Dominick Chirichella said oil is "trying to establish a new trading range" in light of the rising tensions in the region. He said the incidents create "limited downside" for oil in the near-term.
"The market is back to being driven by the possibility of a supply interruption in the Middle East region of the world," Mr. Chirichella said in a note. "Whether or not any of the events that have occurred over the last twenty four hours will eventually change the supply dynamics of the region is certainly an unknown."
The resurgence of geopolitical risk overshadowed weak employment and manufacturing results released Thursday.
Initial U.S. jobless claims grew by 34,000 to a seasonally adjusted 386,000 in the week ended July 14, the Labor Department said Thursday. It was the largest weekly gain since April 2011. Economists surveyed by Dow Jones Newswires had forecast 365,000 new applications for jobless benefits last week.
Also Thursday, the Philadelphia Federal Reserve Bank's manufacturing index showed factory activity in its region contracting for the third straight month. The survey found that mid-Atlantic factory activity contracted, albeit at a slower pace, in July.
The index of manufacturing activity moved to -12.9 in July from -16.6 in June. The index had been expected to hit -9.0. In the survey, readings above zero indicate growth and negative readings indicate contraction.
Front-month reformulated gasoline blendstock, or RBOB, settled at $2.939 a gallon, up 5.55 cents. Front-month heating oil settled at $2.947 a gallon, up 6.94 cents.
Copyright (c) 2012 Dow Jones & Company, Inc.
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