Oil prices fell by about $4 a barrel on Monday after Israel’s retaliatory strike against Iran over the weekend bypassed oil and nuclear facilities and did not disrupt energy supplies.
By 1445 GMT, Brent crude futures fell $4.13, or 5.43%, to $71.92 per barrel, while US West Texas Intermediate crude futures lost $4.04, or 5.63%, to $67.74.
Brent crude futures and US West Texas Intermediate crude recorded their lowest levels since October 1 at the open.
The two benchmarks rose 4% last week in volatile trading, with markets pricing in uncertainty about the imminent US elections and the extent of the expected Israeli response to the Iranian missile attack on October 1.
Dozens of Israeli aircraft completed three waves of strikes before dawn Saturday against missile factories and other sites near Tehran and in western Iran in the latest exchange between the two Mideast rivals.
The attacks were directed more toward military targets than US officials initially feared, amid fears that Israel might retaliate for an Iranian missile strike on October 1 by attacking Iranian nuclear facilities or oil infrastructure.
Analysts said that the geopolitical risk premium that had built up in oil prices in anticipation of the Israeli attack began to decline after the strikes.
Citi cut its Brent price target for the next three months to $70 a barrel from $74, taking into account a lower near-term risk premium, analysts led by Max Layton said in a note.
The fact that Israel did not target Iranian oil infrastructure “reduced the risk premium built into the market and moved the narrative back to what OPEC+ might do to try to balance the market next year in light of weak demand growth,” said Callum, head of commodities at Investec. McPherson said.
The Organization of the Petroleum Exporting Countries and its allies, within the group known as OPEC+, kept oil production policy unchanged last month, including a plan to start increasing production from December. The group will meet on December 1, before the full OPEC+ meeting.
However, tensions remain high in the wake of the attack, and Iran said it “will use all available tools” to respond to the Israeli attack over the weekend, Iranian Foreign Ministry spokesman Esmail Baghaei said Monday.
Meanwhile, Commonwealth Bank of Australia analyst Vivek Dhar does not expect any rapid easing of the conflict in the Middle East.
“Despite Israel’s choice of a low-aggression response to Iran, we have doubts that Israel and Iran’s proxies (Hamas and Hezbollah) are on the right track toward a permanent ceasefire,” he said in a memo.