Oil prices took a nosedive by more than $4 a barrel in response to Israel’s recent retaliatory strike against Iran, which notably did not target oil or nuclear facilities. This move did not disrupt energy supplies, causing a significant drop in prices. Both Brent and U.S. West Texas Intermediate crude futures hit their lowest points since October 1st, with Brent down $4.12 at $71.93 a barrel and WTI dropping $4.03 to $67.75 by 0915 GMT.
Last week, the benchmarks experienced a 4% gain amidst volatile trade as uncertainty surrounding the upcoming U.S. election and Israel’s anticipated reaction to the Iranian missile attack on October 1st loomed large. Israeli jets conducted three waves of strikes against missile factories and other sites near Tehran and western Iran, leading to a decrease in the geopolitical risk premium that had been factored into oil prices.
Analysts speculate that Israel’s response may have been influenced by the Biden administration’s stance ahead of the U.S. election. Vivek Dhar from Commonwealth Bank of Australia predicts a lack of quick de-escalation in the Middle East conflict, despite Israel’s measured response to Iran. Citi has adjusted its Brent price target for the next three months to $70 a barrel from $74, citing a reduced risk premium in the near term.
The upcoming rhetoric from OPEC+ ministers regarding the unwinding of quotas is expected to impact prices, with a potential postponement of production increases due to a soft fundamental outlook and high break-even prices for cartel members. OPEC+ maintained its oil output policy last month, with plans to begin raising output in December.
In conclusion, the recent developments in the Middle East have had a significant impact on oil prices, with various factors influencing the market. It is crucial for investors to stay informed about geopolitical events and OPEC decisions to make informed decisions about their finances.
