Singapore (Reuters) – Oil prices experienced a decline on Monday as concerns eased over potential supply disruptions following Iran’s recent attack on Israel, which the Israeli government reported caused limited damage.
Market Reaction
Brent futures for June delivery saw a decrease of 50 cents, or 0.5%, reaching $89.95 a barrel by 0630 GMT. Meanwhile, West Texas Intermediate (WTI) futures for May delivery dropped by 52 cents, or 0.6%, to $85.14 a barrel.
Iran’s attack involved more than 300 missiles and drones, marking the first attack on Israel from another country in over three decades. Initially raising concerns about wider regional conflict and potential disruptions to oil traffic in the Middle East, the attack resulted in only modest damage, with Israel’s Iron Dome defense system intercepting several missiles.
Warren Patterson, head of commodities strategy at ING, noted, “An attack was largely priced in the days leading up to it. Also the limited damage and the fact that there was no loss of life means that maybe Israel’s response will be more measured.”
Supply Risks and Response Scenarios
Iran, a significant producer within the Organization of the Petroleum Exporting Countries (OPEC), currently produces over 3 million barrels per day (bpd) of crude oil. ING analysts suggest potential supply risks include stricter oil sanctions and the possibility of Israeli strikes on Iran’s energy infrastructure.
However, if significant supply disruptions were to occur, the U.S. could release crude oil from its strategic reserves, and OPEC has more than 5 million bpd of spare production capacity.
Market Expectations and Future Scenarios
While oil benchmarks had risen in anticipation of Iran’s retaliatory attack, analysts predict that any lasting price effects would require a material disruption to supply, such as constraints on shipping in the Strait of Hormuz.
Analysts at ANZ Research stated, “Israel’s response will determine whether the escalation ends or continues. The conflict could still be contained to Israel, Iran, and its proxies, with possible involvement of the U.S.”
Long-Term Price Outlook
Citi Research analysts suggest that prolonged tensions could maintain oil prices in the $85-$90 per barrel range. However, they caution that a direct conflict between Iran and Israel could push oil prices above $100 per barrel. While the recent attack heightened geopolitical tensions, the immediate impact on oil markets appears limited. Market participants remain vigilant for further developments, particularly regarding Israel’s response and any potential escalation of conflict in the region.
