Oil prices fell by more than $4 a barrel on Monday after Israel’s limited retaliatory strike on Iran, which did not target oil or nuclear facilities, leaving energy supplies unaffected.
At the market open, both Brent and U.S. West Texas Intermediate (WTI) crude futures dropped to their lowest levels since October 1. By 0915 GMT, Brent had decreased by $4.12, or 5.4%, to $71.93 a barrel, while WTI fell by $4.03, or 5.6%, to $67.75.
The decline came after a volatile week where prices rose by 4% as markets reacted to uncertainty surrounding the upcoming U.S. election and anticipated Israeli responses to Iran’s missile attack on October 1. Over the weekend, Israeli jets conducted multiple strikes targeting missile factories and other sites in Iran.
Analysts noted that the geopolitical risk premium that had influenced oil prices in anticipation of Israel’s attack has now diminished.
John Evans from oil broker PVM suggested that Israel’s measured response was heavily influenced by the Biden administration ahead of the U.S. election. Meanwhile, Commonwealth Bank analyst Vivek Dhar expressed skepticism about any quick resolution to the ongoing conflict in the Middle East, despite Israel’s restrained actions.
Citi analysts adjusted their Brent price target for the next three months down to $70 a barrel from $74, citing a lower risk premium in the short term.
Looking ahead, Panmure Liberum analyst Ashley Kelty indicated that OPEC+ rhetoric regarding production quotas will be crucial for price movements, particularly as a delay in planned output increases becomes more likely due to a weak market outlook.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies maintained their oil output policy last month, with plans to start increasing production in December. The group is set to meet again on December 1.
