OIL FUTURES: Crude higher amid escalating Middle East tensions

Crude oil futures were higher in the Asian midafternoon Asian trade Oct. 4 amid concerns that an escalating conflict in the Middle East could potentially disrupt crude oil shipments from the region.

At 3:35 pm Singapore time (0735 GMT), the ICE December Brent futures contract was up 55 cents/b (0.71%) from the previous close at $78.17/b, while the NYMEX November light sweet crude contract rose 49 cents/b (0.66%) at $74.20/b.

“The upside potential is clearly present, the rising tensions if coupled with the threat of lower Iranian supplies, should give a further reason to the oil bulls to extend their tactical long positions,” Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank said.

Meanwhile, investors are also awaiting the release of the US nonfarm payrolls report for September late Oct. 4. The results will provide an insight into the Federal Reserve's approach to interest rate cuts, influencing the performance of the US dollar and subsequently affecting the oil market.

Expectations for new nonfarm jobs in September stand at around 147,000, where the unemployment rate is expected to have stabilized near 4.2%, alongside slight wage increases, according to Ozkardeskaya.

“A set of soft jobs report from the US has the potential to fuel the dovish Fed expectations, weigh on the US yields, [and] the dollar ... A stronger-than-expected set of figures, on the other hand, should bring the Fed doves back on earth, lead to a further rebound in the US yields and the dollar,” Ozkardeskaya added.

The ICE US Dollar Index was at 101.620 as of 0645 GMT Oct. 4, down 0.13% from the previous close. A weaker dollar results in dollar-denominated assets like oil futures becoming less expensive to investors holding foreign currencies, thus boosting demand for these assets.

Crude prices have broken key resistance levels on the back of supply-side concerns, where escalating war risks and strikes in the US East and Gulf coasts exerted inflationary pressure, analysts said.

Nonetheless, market volatility remains as the world awaits further development on the geopolitical front.

“One source of consolation may be particularly acute US aversion to expensive oil into US elections, and the attendant intervention. Fact is, typically, in an election year, the US administration (regardless of Party) tends to dampen risks of oil price shocks. So, it is not at all inconceivable that the Biden Administration is piling pressure on Netanyahu not to attack Iran’s oil facilities,” Vishnu Varathan, Managing Director at Mizuho illuminated.

Dubai crude

Dubai crude swaps and intermonth spreads were higher in mid-afternoon Asian trading Oct. 4 from the previous close.

The December Dubai swap was pegged at $75.62/b at 2:45 pm Singapore time (0645 GMT), up $2.63/b (3.60%) from the previous Asian market close.

The November-December Dubai swap intermonth spread was pegged at 55 cents/b, up 7 cents/b over the same period, and the December-January intermonth spread was pegged at 35 cents/b, up 10 cents/b.

The December Brent-Dubai exchange of futures for swaps was pegged at $1.96/b, up 27 cents/b.