In early trading on Monday, oil prices saw a slight pullback after experiencing their largest weekly increase in more than a year on Friday, driven by escalating threats of a potential regional conflict in the Middle East.
Crude oil futures dipped 0.5% to $77.62 per barrel for Brent and $74.03 per barrel for West Texas Intermediate by around 0015 GMT. Last week, Brent rose over 8% and WTI surged 9.1%, marking their most significant weekly gains since early 2023.
Independent market analyst Tina Teng suggested that profit-taking may have triggered the retreat following last week’s price surge. However, ongoing geopolitical tensions, particularly between Israel and Iran, are expected to keep pushing oil prices higher.
Recent events include Israel’s strikes on Hezbollah targets in Lebanon and Gaza, along with Iran’s missile attack on Israel in response. The situation remains volatile, with concerns about potential disruptions to oil supply looming.
Despite the rally in oil prices, ANZ Research believes that the impact on supply will be limited, citing OPEC’s significant spare capacity of 7 million barrels per day. While the group has the ability to offset a full loss of Iranian supply, a retaliatory move by Iran against Gulf neighbors could pose challenges.
Overall, geopolitical tensions are driving oil prices higher, but the market has adapted to such events in recent years, resulting in a smaller risk premium. OPEC+ has been managing production levels to support prices amidst weak demand, with plans to gradually increase output from December.
Investors should monitor the situation closely as any escalation in the conflict could have broader implications for global oil markets and potentially impact their financial portfolios.
