After Iran’s strike on Israel over the weekend turned out to be less destructive than expected, worries about a rapidly escalating conflict that could displace petroleum barrels subsided, and oil prices fell by roughly 1% a barrel on Monday.
Oil Benchmarks See A Spike In Prices
By 1:17 p.m. EDT (1717 GMT), Brent futures for June delivery had dropped 91 cents to $89.54 a barrel, a 1% decline. U.S. oil futures for May delivery dropped 1%, or 87 cents, to $84.79 per barrel.
In advance of Iran’s counterattack, oil benchmarks saw a spike in prices on Friday, reaching their highest level since October.
Israel’s intercept of Iran’s onslaught, which included over 300 missiles and drones, allayed concerns that a regional war would disrupt Middle Eastern oil transportation.
Decreased Oil Demand
“The Israeli defense’s success suggests that geopolitical risk has significantly decreased,” stated Bob Yawger, Mizuho Bank’s director of oil futures.
Yawger continued, “Strong U.S. retail sales data from the Commerce Department also hurt oil prices by raising the possibility that interest rates in the largest economy in the world would stay higher for longer and decrease demand for oil.”
“The key term in that whole scenario is demand destruction,” Yawger stated.
According to Viktor Katona, a Kpler analyst, Iran’s declaration that it views its response as over has decreased the geopolitical tension in the Middle East. John Evans, an oil broker at PVM, stated that the Iranian drone and missile attack “about as telegraphed a world event that people can remember.”
The Israeli Missiles
“They might as well have had big disco lights on them and towed banners with ‘come on, ladies and gentlemen, please shoot me down.’”
The missiles were shot down by Israel’s Iron Dome defense system, resulting in very minor damage from the attack, which Iran said was revenge for an airstrike on its consulate in Damascus.
Iran is one of the top producers of crude oil in the Organization of the Petroleum Exporting Countries (OPEC), producing around 3 million barrels daily.
Thus far, the Middle East’s hostilities, which are centered on the Israel-Hamas conflict in Gaza, have not significantly affected the supply of oil.
According to Amrita Sen, founder and director of research at Energy Aspects, “There will be downside risk over time, but only once it becomes clear Israel has chosen a measured response,” if the crisis does not worsen to the point that it causes supply interruptions.
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