The $120 Oil Shock Just Became A Real Risk: Are We Back In 2022?

Oil is on track for its strongest weekly rally in nearly three years as traders brace for a possible supply crunch after Israel launched major airstrikes against Iran's nuclear and missile infrastructure, reigniting fears of broader conflict in the Middle East.

West Texas Intermediate crude futures briefly spiked as high as $77.50 per barrel during the Asian session before easing to $73 by 8:00 a.m. in New York, still 7% above Thursday’s close.

For the week, oil prices – as tracked by the United States Oil Fund (NYSE:USO) – have risen by nearly 13%, their largest weekly gain since October 2022.

U.S. gasoline futures were up 4% on Friday to $2.21 a gallon, heading for the strongest weekly rally in three months.

The Israeli strikes killed top Iranian military officials and targeted critical installations, including nuclear and ballistic missile sites, raising the specter of retaliatory moves that could disrupt vital oil flows in the region.

Oil Set For Strongest Weekly Rally Since 2022 As Middle East Tensions Flare

Chart: TradingView

How High Could Oil Go? ING Analyst Sees $120 Risk Scenario

Warren Patterson, head of commodity strategy at ING, said Iran's role in the global oil market makes the situation highly sensitive.

"Iran is a meaningful oil producer, pumping 3.3 million barrels per day and exporting around 1.7 million," he said in a research report Friday.

Patterson said disruptions could hit the Strait of Hormuz, a maritime chokepoint that handles nearly one-third of global seaborne crude shipments, in a scenario of continued escalation.

"It still leaves roughly 14 million barrels per day of oil supply at risk," he said, noting that a serious disruption could push prices to $120 per barrel.

He added that Brent crude could test its all-time high of nearly $150 per barrel if disruptions persist toward year-end.

"The renewed standoff between the two countries risks spiraling into a wider conflict," said Alejandro Cuadrado, a strategist at BBVA. He said the volatility spike in oil may spill over into other markets over the weekend.

Wall Street Pulls Back: Energy And Defense Names Surge, Travel Stocks Hit Hard

U.S. equity futures slid Friday as investors reacted to escalating Middle East tensions, with broad declines across major indexes. The S&P 500 fell 0.9%, the Dow Jones Industrial Average lost 1% and the Nasdaq 100 dropped 1.1%.

Energy stocks outperformed sharply during premarket trading, buoyed by the surge in crude prices. Occidental Petroleum Corp. (NYSE:OXY) rose 4.8% to $46.91, APA Corp. (NASDAQ:APA) added 4.76% and Diamondback Energy, Inc. (NASDAQ:FANG) advanced 4.68%.

Oilfield service firms joined the rally, with Halliburton Co. (NYSE:HAL) and Schlumberger Ltd. (NYSE:SLB) both gaining over 4%.

Defense contractors also moved up. Northrop Grumman Corp. (NYSE:NOC) rose 3.94% to $516.71, while Lockheed Martin Corp. (NYSE:LMT) and RTX Corp. (NYSE:RTX) climbed 3.1% and 4%, respectively.

By contrast, travel stocks faced heavy pressure as higher energy costs and geopolitical uncertainty pressured the sector. Carnival Corp. & plc (NYSE:CCL) sank 5.24%, United Airlines Holdings, Inc. (NASDAQ:UAL) fell 4.82% and Delta Air Lines, Inc. (NYSE:DAL) slid 4.58%.

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