Oil prices dipped on Tuesday after gaining more than 4 per cent the previous day as traders weighed the possibility of potential crude supply disruptions amid military clashes between Israel and Hamas.
Brent, the benchmark for two thirds of the world’s oil, was trading 1.02 per cent lower at $87.25 a barrel at 7.01pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 1.03 per cent at $85.49 a barrel.
On Monday, Brent settled 4.22 per cent higher at $88.15 a barrel. WTI closed up 4.34 per cent at $86.38 a barrel.
Hamas launched the largest military assault on Israel in decades on Saturday.
Israel responded by launching a barrage of air strikes on the besieged Gaza strip.
The combined death toll from the Hamas attack on southern Israel and Israel’s assault on the Gaza Strip climbed to nearly 1,600 as fighting entered a fourth day on Tuesday.
Hamas fired thousands of rockets and sent militants into southern Israel, where they killed about 900 people and took back others as hostages. Retaliatory Israeli air strikes had killed almost 700 people in Gaza by Monday, including at least 140 children, said the Gaza Ministry of Health.
“An escalation of tensions between Iran, Israel, hence the US, could have severe consequences for global oil production,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Despite restrictions, Iran increased its exports and shouldered a part of the global production since the Ukrainian war,” she said.
Iran's production has recovered to a five-year high of 3.1 million barrels per day in recent months.
Any disruptions to oil supplies from the Middle East would lead to further tightening of the crude market.
On October 4, the Opec+ group of crude oil-producing states decided to stick to its current output policy and said it was closely assessing the market to take additional measures at “any time”.
Saudi Arabia and Russia have reaffirmed their combined supply cut of 1.3 million bpd to the end of the year.
European natural gas prices rallied on Tuesday after Israel suspended production at the Tamar gas field off its southern coast.
Dutch Title Transfer Facility gas futures, the benchmark European contract, were 6 per cent higher at €46.55 ($49.30) per megawatt hour at 3.05pm UAE time.
"Natural gas prices jumped back above €40 per megawatt hour ... on the back of news of partial production shutdowns in the Eastern Mediterranean and renewed strike risks at export facilities in Australia," said Norbert Rucker, head economics and next generation research, Julius Baer.
The market is jittery but the nervousness is "unwarranted" given high levels of gas stockpiles and with several LNG projects coming online, Mr Rucker said.
Financial markets in the Middle East were mixed on Tuesday amid geopolitical concerns.
Israel's Tel Aviv share index, the TA-35, rose 1.2 per cent after closing up 0.95 per cent on Monday.
The index closed about 7 per cent lower on Sunday, marking the market’s sharpest fall in more than three years.
Meanwhile, the Israeli shekel was last up 1 per cent against the dollar after falling to an eight-year low on Monday.
The Bank of Israel has said it would carry out a sale of up to $30 billion in foreign exchange to support its currency.
The move is expected to provide additional liquidity of up to $15 billion to the market.
Saudi Arabia’s Tadawul closed up 0.61 per cent, while Abu Dhabi Securities Exchange closed 0.17 per cent lower and Dubai Financial Market down 0.12 per cent on Tuesday.
“The weekend attack on Israel by Hamas triggered a wave of safe haven flows towards bunds [debt securities], oil and gold,” said Edward Moya, senior market analyst at Oanda.
“The longer-term market impact … will depend on how involved Iranians were and how much the US and international side get involved,” Mr Moya said.
