May 21, 2024
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Oil Prices Fall After Iran’s Attack on Israel Shows Limited Damage

Oil prices fell during trade on Monday as market participants dialed back risk premiums following Iran’s attack on Israel late on Saturday, which the Israeli government said caused limited damage.

According to Reuters, Brent futures for June delivery dropped 23 cents, or 0.2%, to $90.22 a barrel, while West Texas Intermediate (WTI) futures for May delivery were down 29 cents, or 0.3%, at $85.37 a barrel by 0430 GMT.

The attack involved more than 300 missiles and drones and marked the first on Israel from another country in over three decades, raising concerns about a broader regional conflict affecting oil traffic through the Middle East.

However, the attack, which Iran called retaliation for an air strike on its Damascus consulate, resulted in only modest damage, with Israel’s Iron Dome defense system intercepting several missiles.

“An attack was largely priced in the days leading up to it. Also, the limited damage and the fact that there was no loss of life mean that maybe Israel’s response will be more measured,” said Warren Patterson, head of commodities strategy at ING. “But clearly, there is still plenty of uncertainty, and it all depends on how Israel now responds.”

With Iran currently producing over 3 million barrels per day (bpd) of crude oil as a major producer within the Organization of the Petroleum Exporting Countries (OPEC), supply risks include more strictly enforced oil sanctions and the potential for Israel’s response to target Iran’s energy infrastructure, ING said in a client note on Monday.

However, in the event of significant supply loss, the U.S. could release further crude oil from its strategic petroleum reserves, while OPEC holds over 5 million bpd of spare production capacity, according to ING.

“If prices were to rally significantly on the back of supply losses, one would imagine that the group would look to bring some of this spare capacity back onto the market. OPEC will not want to see prices going too high given the risk of demand destruction.”

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