A view of Iranian oil industry facilities in Mahshahr, Khuzestan Province, southern Iran.
Kazemi Cafe | Getty Images
US crude oil prices fell more than 6% on Monday, their worst day in more than two years after Iranian energy facilities were not damaged during Israeli strikes over the weekend.
US West Texas Intermediate crude futures fell 6.13% to close at $67.38 per barrel, their biggest daily loss since July 12, 2022, when the index fell 7.93%. Brent crude futures fell by 6.09% to settle at $71.42 per barrel.
On Saturday, Israel attacked Iranian military facilities in three provinces in response to Tehran's launch of ballistic missiles against Israel on October 1.
The attack, which the state-owned Islamic Republic News Agency said killed four soldiers, caused “limited” damage, Iran's Tasnim news agency reported. The strike targeted oil, nuclear and civilian infrastructure sites. The Iranian oil news network Shana said that the process of the Iranian oil industry is “progressing normally” without any interruption.
For weeks, markets have braced for Israeli retaliation following Iran's direct attack on the Jewish state earlier this month. Tensions in the wider Middle East continued to rise following the attack launched by the Iranian-backed Hamas movement on Israel on October 7 last year.
The main consideration for oil markets was direct communication between the two parties, with fears of an attack on Iranian oil facilities increasing in recent weeks. Iran accounts for up to 4% of global oil supplies, according to the US Energy Information Administration.
Oil prices will remain under pressure for the rest of this year, and it may be difficult to see Brent crude oil prices reaching $80 in the foreseeable future.
Andy Lebo
President of Lipow Oil Associates
“The market is unlikely to view Israel's recent military action as leading to an escalation affecting oil supplies,” Citi analysts wrote in a note on Monday, lowering the bank's Brent crude forecast by $4 to $70 a barrel over the next three months. .
Oil markets are also experiencing a global surplus in supply.
“With Israel, and perhaps with some American encouragement, deliberately avoiding targeting crude oil facilities, the oil market has returned to looking at an oversupplied market,” said Andy Lipow, president of Lipow Oil Associates.
He added that oil production is increasing not only in major countries such as the United States, Canada and Brazil, but even among smaller players such as Argentina and Senegal.
“Oil prices will remain under pressure for the rest of this year, and it may be difficult to see Brent prices reaching $80 in the foreseeable future,” Lipow told CNBC via email.
The risk premium fell by a few dollars a barrel, as the limited nature of the strikes, including avoiding oil infrastructure, raised hopes for a de-escalation path, said Sol Cavonic, energy analyst at MST Marquee.
Oil prices since the beginning of the year
Kavonek told CNBC that the spotlight will now be on whether Iran faces attack in the coming weeks, which will see risk premiums rise again. He pointed out that the general trend of the conflict still tends to escalate, with great scope for another round of attacks.
During the Cabinet meeting on Sunday, Iranian President Masoud Pezeshkian stressed Iran's right to respond to the Israeli attack.
He said, “We do not seek war, but we will defend our country and the rights of our people. We will give a proportionate response to the aggression.”
Market attention will now turn to the ceasefire talks between Hamas and Israel and Israel-Hezbollah that resumed over the weekend, according to Vivek Dhar, director of mining and energy commodities research at the Commonwealth Bank of Australia.
“Despite Israel’s choice of a low-aggression response to Iran, we have doubts that Israel and Iran’s proxies (i.e. Hamas and Hezbollah) are on the right track toward a permanent ceasefire,” Dhar wrote in a memo.
Although the selling was a result of relief that Israel had not struck Iranian oil facilities, Rapidan Energy founder Bob McNally noted that the markets were not out of the woods yet.
“The direct Israeli-Iranian conflict is likely to continue. Israel has indicated that it is able and willing to target energy and nuclear targets in future strikes,” McNally said, and he expects prices to remain volatile but within a specific range.
