Oil prices fell as market participants cut risk premiums after Iran’s attack on Israel caused limited damage. Brent crude futures were down 0.2% at $90.2 a barrel, while WTI crude futures were down 0.3% at $85.4.
The attack, which involved more than 300 missiles and drones, was the first attack on Israel by another country in more than three decades, raising concerns about a wider regional conflict affecting oil shipments across the Middle East. But the attack, which Iran said was retaliation for an airstrike on its consulate in Damascus, caused only modest damage: the missiles were shot down by Israel’s Iron Dome defense system and with the help of other countries.
“The attack was largely calculated in the days leading up to it. In addition, the limited damage and the fact that there were no casualties means that perhaps the Israeli response will be more measured,” said Warren Patterson, head of the strategy division. raw materials at ING. However, according to him, “it is clear that there is still a lot of uncertainty, and everything depends on how Israel will react now.”
Risks of reduced oil supply
With Iran currently producing more than 3 million barrels per day of crude oil, being one of the main producers within the Organization of the Petroleum Exporting Countries (OPEC), supply risks include stricter compliance with oil sanctions and what an Israeli response could include attacking energy infrastructure of Iran, ING said. But if there is a significant supply loss, the US could release even more crude from its strategic oil reserves, while OPEC has more than 5 million barrels per day of spare production capacity, the report said.
“If prices were to rise significantly amid supply cuts, one could assume that the group would seek to return some of this spare capacity back to the market. OPEC would not want prices to rise too high, given the risk of demand destruction,” ING said.
Oil prices rose on April 12 in anticipation of a retaliatory attack by Iran, reaching their highest level since October.
Despite the limited damage, analysts this morning expected at least a short-term increase in prices, but the more significant and long-term price effects of the escalation would require significant supply disruptions, such as restrictions on shipping in the Strait of Hormuz.
So far, the conflict between Israel and Hamas has not affected oil supplies.
Forecast of oil prices
“The strike on the Iranian embassy in Syria and Iran’s retaliatory measures have heightened tensions in the Middle East. However, we do not expect an immediate reaction in crude oil prices, given ample spare capacity and an already elevated geopolitical risk premium,” ANZ Research analysts said.
In their view, Israel’s response will determine whether the escalation ends or continues. “The conflict, as before, may be limited to Israel, Iran and its proxies, with the possible participation of the USA. Only in the extreme case, we see that it will have a real impact on the oil markets,” the report says.
Analysts at Citi Research said that the tensions that continued in the second quarter of this year largely led to an increase in oil prices to $85-$90 per barrel. Since supply and demand in the market were broadly balanced during the first quarter, any de-escalation could lead to a fairly sharp drop in prices to the $70 range or the $80 range per barrel.
“What we don’t think the current market has factored in is the potential continuation of direct conflict between Iran and Israel, which we estimate could push oil prices to over $100 a barrel depending on the nature of events,” – it is said in the message of analysts.
