By Florence Tan and Jeslyn Lerh
SINGAPORE – Oil prices saw a significant drop of more than $3 a barrel on Monday following Israel’s retaliatory strike on Iran, which did not target Tehran’s oil and nuclear facilities, ultimately easing geopolitical tensions in the Middle East.
Both Brent and U.S. West Texas Intermediate crude futures hit their lowest levels since Oct. 1 at the open. As of 0750 GMT, Brent was trading at $72.92 a barrel, down $3.13, or 4.1%, while WTI slipped $3.15, or 4.4%, to $68.63 a barrel.
Last week, the benchmarks experienced a 4% gain in volatile trade as uncertainty loomed over Israel’s response to the Iranian missile attack on Oct. 1 and the upcoming U.S. election.
Israeli jets carried out three waves of strikes against missile factories and other sites near Tehran and western Iran over the weekend, signaling the latest exchange in the escalating conflict between the Middle Eastern rivals.
Analysts noted that the geopolitical risk premium in oil prices, which had increased in anticipation of Israel’s retaliatory attack, decreased following the strikes.
“The more limited nature of the strikes, including avoiding oil infrastructure, have raised hopes for a de-escalatory pathway, which has seen the risk premium come off a few dollars a barrel,” said Saul Kavonic, an energy analyst at MST Marquee based in Sydney.
Market attention is now shifting towards ceasefire talks between Israel and Iran-backed militant group Hamas, which resumed over the weekend, according to Commonwealth Bank of Australia analyst Vivek Dhar.
Citi analysts led by Max Layton lowered their Brent price target for the next three months to $70 a barrel from $74, citing a reduced risk premium in the near term.
Looking ahead, U.S.-based Evans Energy analyst Tim Evans expressed that the market may be undervalued, with the possibility of OPEC+ producers delaying the planned increase in output targets beyond December.
In October, OPEC+ decided to keep their oil output policy unchanged, including a plan to begin raising output from December. The group is scheduled to meet on Dec. 1 ahead of a full meeting of OPEC+.
Analysis:
The recent drop in oil prices following Israel’s retaliatory strike on Iran indicates a potential easing of geopolitical tensions in the Middle East. This development could lead to lower oil prices in the near term, impacting both consumers and investors. With the risk premium in oil prices decreasing, there may be opportunities for investors to capitalize on the market fluctuations. Additionally, the ongoing ceasefire talks between Israel and Iran-backed groups could influence future oil price movements. It is essential for individuals to stay informed about these geopolitical events to make informed decisions regarding their finances and investments.
