On Friday, oil prices closed on a positive note, although they recorded a weekly decrease. We saw the Brent crude benchmark fall by about 3% over the week, while WTI crude had a steeper drop of around 5%.
In the U.S., some Gulf of Mexico operators have restarted operations after Hurricane Helene struck Florida last Thursday. Notably, Chevron redeployed personnel and resumed production at its platforms on Friday. However, the hurricane, classified as the seventh most powerful to hit Florida, could dampen fuel demand in a state that ranks third in gasoline consumption.
At the beginning of the week, oil prices displayed relative stability on Monday, closing Q3 with a significant 17% drop. While concerns over escalating conflicts in the Middle East initially raised fears of supply disruptions, market sentiment was largely influenced by declining worries about global demand. Brent crude fell 9% in September, the largest monthly drop since November 2022, and dropped 17% for Q3 of the year. Similarly, WTI prices declined by 7% in September and 16% over the quarter.
In the early hours of today, the WTI crude recorded an increase of about 2.76% while Brent crude went as high as 2.56%. The potential for increased oil production from Libya added to the downward pressure on prices. Libya’s eastern parliament appointed Naji Mohamed Issa Belqasem as the new central bank governor, a move that could ease the ongoing crisis affecting the country’s oil production.
Geopolitical Impact: Middle East Tensions Affect Oil Prices
Following a significant escalation in the Middle East conflict, with Iranian forces launching over 180 ballistic missiles at Israel in a major retaliation against ongoing Israeli operations against Hezbollah, oil prices surged more than 3% on Tuesday.
The missile attacks triggered air raid sirens across Israel, leading to mass evacuations and escalating fears of a wider conflict that could impact global oil supplies. Prior to this alarming news, oil prices had been trending downward, nearing a two-week low, partly due to expectations of Libya restoring its oil production.
Recall that Iran and Libya are critical OPEC members. On the one hand, while Iran is currently under U.S. sanctions, there was a recorded production of approximately 4 million barrels per day in 2023. On the other hand, Libya’s output was around 1.3 million barrels per day, according to the Energy Information Administration (EIA). Any disruptions in production from these nations could have significant repercussions for global oil supply dynamics.
Historically, prior to major military actions, the leading cryptocurrencies often experienced a sharp rise in value. However, once the attack commences, a quick downturn usually
follows. Savvy traders tend to exit the market immediately to avoid significant losses, often referred to as ‘catching the falling knife.’ This pattern was observed just before Russia’s invasion of Ukraine in February 2022 and again before Hamas attacked Israel in October 2023. Recently, a similar trend has been noted as Iran launched hundreds of missiles toward Israel, causing a rapid decline in crypto values within the last 40 hours after Bitcoin and Ethereum had rallied upwards within the immediate past week.
Clearly, institutional investors are increasingly anxious due to rising tensions in the Middle East, leading to significant withdrawals from Bitcoin exchange-traded funds (ETFs) in the United States. On Tuesday, October 1, the 11 U.S. Bitcoin ETFs collectively experienced outflows totaling $242.6 million, according to data from Farside Investors. This marked the largest withdrawal in nearly a month, following a $288 million exit on September 3.
This outflow day was notable not only for its size, but also because it was the third-largest withdrawal day in the past five months, interrupting a positive trend of eight consecutive trading days of inflows, which had peaked at $494 million on September 27. The Fidelity Wise Origin Bitcoin Fund recorded the most significant outflow, totaling $144.7 million. The ARK 21Shares Bitcoin ETF followed with a loss of $84.3 million.
These trends indicate a cautious approach among investors as they navigate an uncertain market, reflecting broader concerns that may impact future investment strategies in cryptocurrencies generally.
