Oil prices experienced a decline in trading on Monday following Iran’s attack on Israel late Saturday, with market participants reducing risk premiums. The attack, involving over 300 missiles and drones, marked the first assault on Israel from another nation in over three decades, sparking concerns about potential disruptions to oil traffic in the Middle East. Despite this, the Israeli government reported limited damage from the attack, with missiles intercepted by its Iron Dome defense system.
The market reaction to the attack was somewhat muted, as it had been anticipated in the days leading up to the event. Additionally, the minimal damage and absence of casualties suggested that Israel’s response might be measured, leading to a dampening of market volatility. However, there remains significant uncertainty regarding Israel’s next steps and how it will respond to the attack.
Analysts highlight potential risks to oil supply, including stricter sanctions on Iran’s oil exports and the possibility of Israel targeting Iran’s energy infrastructure in retaliation. Iran currently produces over 3 million barrels per day, making it a key player within OPEC. However, there are contingency plans in place, such as the release of crude oil from strategic reserves by the US and spare production capacity within OPEC.
While oil prices initially surged in anticipation of Iran’s retaliatory attack, the limited impact has led to a modest decline in prices. Analysts note that a sustained increase in prices would likely require a significant disruption to oil supply, such as constraints on shipping in the Strait of Hormuz.
The ongoing conflict between Israel and Hamas has so far had minimal impact on oil supply. Analysts suggest that while tensions in the Middle East have heightened, the geopolitical risk premium in oil prices remains elevated. However, any escalation in the conflict could potentially push oil prices higher.
Looking ahead, market analysts anticipate that prolonged tensions could keep oil prices in the range of $85-90 per barrel. However, a de-escalation of the conflict could lead to a decline in prices to the high $70s or low $80s per barrel range. Conversely, a direct conflict between Iran and Israel could see oil prices surpass $100 per barrel, depending on the nature of events.
Overall, the market response to Iran’s attack on Israel underscores the delicate balance between geopolitical tensions and oil supply dynamics. While the immediate impact on oil prices has been limited, ongoing developments in the region will continue to influence market sentiment and price movements in the coming days.
