$107 Brent: Market Prices Longer War in Middle East Conflict
Oil prices have surged to a new high, with Brent touching $107 per barrel before giving back some of its gains. The market is no longer just reacting to the latest escalation in the Middle East but is now pricing in a longer conflict.
The price of November Brent rose 5.65% to $106.93 per barrel, while October WTI gained 5.76% to $101.58 per barrel. This marks a significant increase, with Brent more than 70% higher this year compared to the same period last year.
Saudi Arabia has told OPEC that its crude production plummeted to the lowest level since 1990 in August, while Iran has signaled it will not back down from the American naval blockade and is prepared to intensify its strikes if the US continues attacking its territory. The escalation of the conflict has led to a repricing of two things: the immediate escalation and the duration of the geopolitical risk.
The distinction between these two factors matters, as a sudden disruption can be bought, hedged, and eventually faded, while a prolonged conflict forces the market to carry the risk premium forward. The physical market is already tightening beneath it, with options positioning adding fuel to the fire. Trend-following funds have also moved aggressively into the trade, with commodity trading advisers reaching 100% of their maximum long exposure in Brent on Thursday.