Oil Price Spike on Escalation of Iranian-Israeli Conflict is Probably Only Good to Cover Oil Longs, as Crude Fundamentals Weigh

Earlier today, Wednesday, October 2, the world’s oil prices soared more than 3% as Israel and the U.S. vowed retribution for Iran's largest direct attack on its regional adversary. Even though international pleas have been made, the conflict has intensified rapidly as Israel also ordered more soldiers into Lebanon to fight Hezbollah, a militant group backed by Iran. Brent futures initially rose $2.26, or ~3.1%, to $75.82 a barrel, just to ease down to $71.32/bbl as of writing. A day earlier, both crude benchmarks rallied more than 5%, with WTI crude gaining $2.38, or 3.42%, to $72.22/bbl.

However, this price spike should be perceived rather as an opportunity to close the oil longs, since Saudi Energy Minister, Prince bin Salman, warned fellow OPEC+ ministers that oil prices could slump to $50 per barrel if other producers continue to ignore their output quotas. Other producers interpreted the warning as a veiled threat that Saudi Arabia is fed up with quota violators and could launch a price war to regain market share, which is just another bad news for oil, on top of the many other considerations, such as the U.S.’s racking up its oil production despite the news of new underwater oil spills in the Mexican Gulf.