Crude oil is fall of more than 4% on the markets at the European closure (the barrel of Brent falls below 72 dollars) due to the “burst” of the geopolitical risk premium, which was inflating the price of crude oil in recent months. This drop in crude oil comes after Israeli attacks on Iran avoided oil installations and other sensitive points. Furthermore, after the attack, Iranian leaders downplayed damage and left a somewhat ambiguous message: The answer should not be small or exaggerated. Joe Biden, President of the United States, indicated that this could mean the end of military “coups d’état” between the two countries, which raise certain hopes in the region and lower the price of oil: the worst of the conflict could have been left aside. This deflates a risk premium on crude oil which was at high levels (we were talking between 20 and 30 dollars per barrel).
Oil has reached falling more than 6% at its lowest point after Iran confirmed its oil industry was operating normally following Israeli attacks on military targets across the Persian country, in retaliation for a missile bombardment earlier this month. All this happened last Saturday, when the Israeli army launched what it called “precise attacks against military targets” of Iran, in retaliation, he said, “for months of continued attacks by the Iranian regime against the State of Israel.” However, on weekends, the oil futures market is closed. Investors therefore suddenly put a price on this event this morning (Spanish time).
Moreover, against all odds, Iranian authorities have downplayed the attacks which, according to their version, caused only “limited damage”. In this context, the Palestinian Islamist group Hamas, which de facto controls the Gaza Strip, has been open to an agreement with Israel as long as Israeli Prime Minister Benjamin Netanyahu “maintains his commitment to what has already been agreed.” according to a senior official of the organization. It seems that a superior force is leading Iran and Israel to exercise more restraint in their actions to avoid a possible oil crisis that would revive inflation and put the governments of developed countries on the ropes.
A measured response
“Israel’s measured and targeted response has raised hopes of de-escalation”Warren Patterson, head of commodities strategy at ING in Singapore, writes in a note. “If we see some de-escalation, that would allow fundamentals to dictate price direction again.”
Moreover, andUnited States President Joe Biden expressed hope on Saturday that Israeli attacks on Iran would end a period of tensions in the Middle East, which had sparked fears of regional war. “It looks like they only achieved military objectives. I hope that’s the end of it,” Biden assured reporters in Pennsylvania, where he is scheduled to participate in several events before the November 5 election.
Biden indicated that he had been informed in advance of the Israeli attacks, in retaliation for the Iranian attack on October 1. which included up to 180 ballistic missiles against Israeli territory, which caused an oil explosion the same day. The Israeli attack, launched at dawn on Saturday, caused the death of at least four Iranian soldiers, according to the Israeli army in recent hours.
The strength of oil supply
Beyond the geopolitical factors driving crude oil today, the market faces a strong supply situation that has kept oil gains in check for much of the year. Before the exchange of blows between Israel and Iran, Brent crude oil had fallen below $70, which was completely unthinkable a few months ago, amid sharp OPEC cuts and war without end between Russia and Ukraine. Added to this is the threat from Saudi Arabia that prices will fall due to its unused production capacity.
The analysts of Goldman Sachs They said last week that market attention was shifting from the Middle East conflict to “the risks of oversupply in 2025” as OPEC members consider reversing cuts production volunteers this year. Furthermore, they explained that in previous periods of supply disruption, Saudi Arabia and the United Arab Emirates alone had made up about 80% of the deficit “in two quarters,” according to the report. Financial Times.
Thus, the price of Brent crude oil, the benchmark in Europe, fell by 6%, to 71 dollars, according to data from Bloomberg. Likewise, the West Texas Intermediate (WTI), the benchmark in the United States, fell by 6.2%, to 67 dollars.
