Oil prices tumbled more than $3 a barrel on Monday after Israel’s retaliatory strike on Iran over the weekend bypassed Tehran’s oil and nuclear facilities and did not disrupt energy supplies, easing geopolitical tensions in the Middle East.
Both Brent and U.S. West Texas Intermediate crude futures hit their lowest levels since Oct. 1 at the open. By 2304 GMT, Brent was at $72.88 a barrel, down $3.17, or 4.2%, while WTI slipped $3.13, or 4.4%, to $68.65 a barrel.
The benchmarks gained 4% last week in volatile trade as markets priced in uncertainty around the extent of Israel’s response to the Iranian missile attack on Oct. 1 and the U.S. election next month.
Scores of Israeli jets completed three waves of strikes before dawn on Saturday against missile factories and other sites near Tehran and in western Iran, in the latest exchange in the escalating conflict between the Middle Eastern rivals.
The geopolitical risk premium that had built in oil prices in anticipation of Israel’s retaliatory attack came off, analysts said.
The more limited nature of the strikes, including avoiding oil infrastructure, has raised hopes for a pathway to de-escalate hostilities in the Middle East, especially if it becomes clear Iran will not counter attack in coming days, Saul Kavonic, an energy analyst at MST Marquee, said.
“But despite the ebb and flow of Middle Eastern conflict news flow, the overall trend remains one of escalation, and the scope for another round of attacks to develop, leading to oil prices spiking, has never been higher,” he said.
Analyst Tim Evans at Evans Energy said in a note: “We think this leaves the market at least somewhat undervalued, with some risk OPEC+ producers may push back the planned increase in output targets beyond December.”
In October, the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, kept their oil output policy unchanged including a plan to start raising output from December. The group will meet on Dec. 1 ahead of a full meeting of OPEC+.