Oil prices fall 5% after a limited Israeli retaliatory strike on Iran

Oil prices fell by more than $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.

Both Brent and US West Texas Intermediate crude futures hit their lowest levels since October 1 at the open. By 0915 GMT, Brent was down $4.12, or 5.4 percent, at $71.93 a barrel, while WTI was down $4.03, or 5.6 percent, at $67.75.

Benchmarks rose 4 percent in volatile trading last week as markets priced in uncertainty over the looming US election and the size of Israel’s expected response to Iran’s Oct. 1 missile attack.

Dozens of Israeli warplanes carried out 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 Middle Eastern rivals.

The geopolitical risk premium that had built into oil prices in anticipation of the attack on Israel disappeared, analysts said.

There can be no doubt that Israel’s response in the run-up to the US elections has been heavily influenced by the Biden administration, said John Evans at oil broker PVM.

Commonwealth Bank of Australia analyst Vivek Dhar, meanwhile, does not expect a quick de-escalation of the conflict in the Middle East.

“Despite Israel’s choice of a low-aggression response to Iran, we doubt that Israel and Iran’s allies (Hamas and Hezbollah) are on track for a lasting ceasefire,” he said in a note.

Citi cut its Brent price target for the next three months to $70 per barrel from $74, taking into account a lower near-term risk premium, analysts led by Max Layton said in a note.

“The rhetoric from OPEC+ ministers in the coming weeks on quota reductions will be a key driver for prices, with a postponement of production increases becoming more likely given the soft fundamental outlook and high break-even prices needed for most cartel members.” said Panmure Liberum analyst Ashley Kelty.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, left oil production policy unchanged last month, including a plan to increase production from December. The group will meet on December 1 ahead of a full OPEC+ meeting.