Analysis (14)

Israeli/Hamas conflict raises wider oil disruption fears

The probability of an Israeli/US attack on Iran by end 2013 rose by 2% today (Tuesday) to 20% – according to InTrade.

This followed an Israeli airstrike on Gaza which killed the leader of Hamsas’ militant wing. The strike came in retaliation for 115 missiles fired from Gaza into Israel in the past week.

Oil prices (Brent) rose 1.4% to almost $110 per barrel on the news. With both sides dug in for a drawn out game of missile retaliation oil prices are likely to stay near current levels, remaining volatile.

Despite the conflict the chances of any actual disruption to oil production is low. The concern is that Iran will be drawn into backing Hamas, drawing Israel into an attack on Iran.

Chinese fuel prices face more volatile future

China may abandon its current mechanism for setting domestic oil prices (which impacts the price of petrol and other fuels) according to a report in the Morning Whistle. The current mechanism only changes domestic prices when the price of oil in three particular cities changes more than 4% in 22 successive working days.

The new mechanism is likely to be shortened to 10 working days and the minimum 4% price change will be abandoned. Overall, this is likely to mean greater volatility in domestic Chinese oil and fuel prices. Although this presents an additional challenge for businesses it should help Chinese refineries improve their margins.