The eruption of hostilities between Israel and Palestine over the weekend has cast another layer of complexity for stock traders already grappling with a challenging market. However, the oil market is ablaze with activity.

Crude oil prices experienced a rapid ascent, witnessing a robust 4% uptick as the Israel-Hamas conflict entered its third day. The conflict was ignited by a surprise assault initiated by the Palestinian militant group Hamas against Israel.

As of Monday, the global benchmark, Brent crude, notched $88.02 per barrel, reflecting an impressive 4.07% surge. Meanwhile, U.S. West Texas Intermediate futures climbed 4.25%, reaching $86.31 per barrel.

The attack, which unfolded during the early hours of Saturday, coinciding with a significant Jewish holiday, involved a multi-pronged offensive by Hamas, involving land, sea, and even paragliders. This offensive followed a relentless barrage of thousands of rockets launched from Gaza into Israel.

While the surge in crude oil prices is unmistakable, some traders maintain a level of skepticism regarding its sustainability, viewing it as a knee-jerk reaction. To precipitate a substantial and enduring drop in oil prices, a sustained disruption in oil supply or transportation would be imperative.

Historical precedents have demonstrated the ephemeral nature of such price spikes, often overshadowed by other prevailing market dynamics. Moreover, the ongoing conflict does not present a direct threat to significant oil supply sources.

Israel houses two oil refineries, boasting a combined daily capacity of nearly 300,000 barrels. However, it bears noting that Israel generates almost no crude oil or condensate, as affirmed by the U.S. Energy Information Administration. In parallel, EIA data corroborates that the Palestinian territories do not engage in oil production.

Nonetheless, given the geographical proximity of the conflict to a pivotal oil-producing and exporting region, concerns are palpable, particularly concerning oil-rich Iran. If Western nations officially establish links between Iranian intelligence and the Hamas attack, Iran's oil supply and exports could be exposed to immediate risks.

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Fullerton Markets Research Team
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