Oil Prices Up on Israeli Attacks in Gaza and Weak Dollar

Israeli tanks near the Gaza border Image: New York Times/AP/Sebastian Scheiner

Over the last few months, economic factors have caused changes in oil prices, with few exceptions.  Yesterday’s Israeli air strikes on Hamas infrastructure in the Gaza strip showed how geopolitical events can also have profound effects on the world oil market; oil prices jumped this morning as Israel continued its assault on Gaza’s ruling faction.  The military action stoked fears that instability in the Middle East could lead to oil supply disruptions–but fears of long-term supply problems are largely unfounded, according to an Associated Press article:

“There could be fear that an escalating Middle East conflict could disrupt supplies, though I don’t see that happening at this point,” said Gerard Rigby, energy analyst with Fuel First Consulting in Sydney. “(Israel-Palestinian conflict) always causes a bit of a blip and is one component that could support prices short-term.”

A declining dollar, depressed by consistently negative US economic news, also helped to lift oil prices, as cheap U.S. currency made the commodity a more attractive investment.  China also announced plans to increase its crude oil stockpiles while prices are low, maintaining brisk imports from OPEC members (primarily Saudi Arabia).  OPEC member United Arab Emirates also helped support prices by announcing production cuts in line with OPEC targets set at its meeting in Algeria earlier this month.

As of 9:58 am eastern time, the price for a barrel of crude had retreated from an early peak of $42, but still stood more than a dollar up on the day at $38.79.  Heating oil followed a similar path, up 3% over Friday’s closing price.

HEAT USA price experts reported a 4¢ increase in the price of heating oil over Friday’s price early this morning, as well as a 6¢ increase effective at 10 am as a result of the spike in market prices.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: UP $0.10
Morning Projection (for Tuesday’s average price per gallon): DOWN $0.01