Oil jumped on Wednesday after Iran called for an embargo against Israel amid the Israeli-Hamas war and a drop in US stockpiles signaled increased demand for crude.
Brent (BZ=F) crude jumped almost 2% to hover above $91 per barrel. West Texas Intermediate (CL=F) also rose almost 2%, trading beyond $88 per barrel.
Iran’s foreign minister called for the crude boycott by Muslim countries against Israel after a bombing at a Gaza hospital, for which each side is blaming the other.
The call comes amid President Biden’s arrival to the region in support of Israel. The heads of Jordan, Egypt, and the Palestinian Authority canceled a meeting with President Biden. The cancelation doesn’t bode well for the president’s efforts to stabilize the region and make sure the fighting doesn’t broaden.
"Iran's involvement is the key focus for the crude market and this is essentially because they are a huge crude producer," Rebecca Babin, CIBC Private Wealth energy trader, told Yahoo Finance Live earlier this week.
Last week prices jumped on worries that a disruption to Iran's output of roughly 3.2 million barrels per day would impact the global price of crude.
"If one million barrels per day is knocked out of the market ... I would expect the price of oil to increase 20%-25%," Ed Hirs, economist and energy fellow at the University of Houston, told Yahoo Finance.
EIA data on Wednesday showed an increase in demand for oil as inventories in Cushing, Okla., the largest storage hub in the country, dropped to the lowest level since 2014. The stockpile draw coincides with US crude exports jumping to a June high.
"Cushing, Okla., inventories have remained concerningly low through most of 2023. High global fuel demand has pulled on US exports where a lot of that oil is pulled from storage and gathering systems in Cushing," Dennis Kissler, senior vice president of Trading Division at BOK Financial, told Yahoo Finance.
Despite oil's recent price volatility, prices are still roughly 7% below their 2023 high reached on Sept. 28.
"Fundamentally ... the crude market remains very healthy," said Babin of CIBC Private Wealth. "We are in a place where supply and demand are very closely balanced, if not in a slight deficit."
Oil surged in the third quarter of this year amid continued OPEC+ production cuts and unilateral reductions by Saudi Arabia, which are expected to continue through year-end.
"A lot of the view [on oil prices] hinges on what [OPEC+ does] next. I think they stand pat, and we continue to see crude trade really well supported in that low-$80s range," Babin said.
"[If] we get into the $90s we do start to worry about demand destruction, which I think is a very real thing."
Energy stocks also jumped on Wednesday, with ExxonMobil (XOM) and Chevron (CVX) both moving higher amid the rising oil prices. The S&P 500 Energy Select ETF (XLE) was up more than 1.5%.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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