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Oil prices fell sharply on Monday after Israel’s attack on Iran at the weekend avoided oil and nuclear facilities and Tehran signalled a measured response to the strikes.
Brent crude futures, the international benchmark, fell as much as 5 per cent in early Asian trading to $71.99 a barrel but later pared back losses to trade at $72.83. West Texas Intermediate futures, the US benchmark, fell 3.2 per cent to $68.56 a barrel.
The move came after Iran’s supreme leader Ayatollah Ali Khamenei on Sunday signalled a measured response to Israel’s attack the previous day, refraining from issuing any direct threats of retaliation.
The US had pressed Israel to avoid Iran’s nuclear and oil sites in any retaliation to Iran’s ballistic missile attack at the start of October. The conflict involving Israel, Iran and Iranian-backed militants has raised concerns that the Middle East is being pushed into a full-blown war.
However, Iran’s initial reaction was to play down the strikes’ impact. On Saturday, the General Staff of the Armed Forces said Iran’s emphasis was on supporting a ceasefire in Gaza and Lebanon.
“The recent geopolitical flare-ups are no longer reflected in a geopolitical premium nor [in] the absolute level of oil price where the bearish supply/demand dynamics are dominating still,” said Sophie Huynh, senior cross-asset strategist at BNP Paribas Asset Management. “At this stage, the market is not pricing any disruption yet on the Strait of Hormuz.”
Brent crude prices had jumped in recent weeks over fears of supply disruption.
Analysts at Goldman Sachs said last week that the market focus was shifting away from the Middle East conflict towards “the risks of oversupply in 2025”, as Opec members plan to unwind voluntary production cuts this year.
They added that in previous periods of supply disruption, Saudi Arabia and the UAE alone had made up about 80 per cent of the shortfall “within two quarters”.
“The geopolitical risk premium in oil flat prices is limited as Israel-Iran tensions have not significantly affected oil supply from the region and as spare capacity is high”, they wrote.