Geopolitical Strife Temporarily Impacts Oil Prices as Oil Market Awaits Israel's Response to Iran

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ICARO Media Group
Politics
08/10/2024 15h12

**Oil Prices Dip as Market Awaits Israel's Response to Iran's Missile Attack**

The recent upward surge in oil prices has come to a halt as the global market anxiously waits for Israel’s anticipated retaliation against Iran. Following Iran’s launch of approximately 180 ballistic missiles at Israel last week, oil prices had surged about 13% by Monday’s close. However, on Tuesday, crude oil futures saw a significant decline of more than 4%.

According to market analysts, the rally driven by geopolitical tensions can only persist for so long without an actual disruption in the oil supply. Tamas Varga, an analyst at PVM, emphasized that oil prices can ascend on perceptions alone only for a limited period. The expectation set by media reports is that Israel will target military and intelligence sites in its retaliatory strike against Iran. U.S. President Joe Biden has publicly advised Israel to refrain from hitting Iran’s oil infrastructure to avoid further escalating the situation.

Tuesday's energy market saw West Texas Intermediate November contracts fall to $73.52 per barrel, a decrease of $3.62 or 4.7%. Despite this drop, U.S. crude has overall gained more than 2% year to date. Brent December contracts also slid by $3.65, landing at $77.28 per barrel, marking a 4.5% reduction. Globally, Brent remains largely unchanged for the year. RBOB Gasoline November contracts saw a 4.3% dip, registering at $2.062 per gallon, continuing a year-to-date decline of about 2%. Natural Gas November contracts stayed relatively stable at $2.745 per thousand cubic feet, showing an increase of more than 8% year to date.

Manish Raj, managing director of Velandera Energy Partners, noted that initial fears of conflict in the Middle East had driven temporary purchasers to the oil market. However, seasoned investors, accustomed to such volatility, typically sell amid war hype and reenter the market when prices stabilize. The energy market also faced disappointment due to the lack of new economic stimulus measures from Chinese officials, which compounded the bearish sentiment that preceded the Middle East escalation.

Before the recent geopolitical tensions, the global market was already under pressure from weak demand in China, the world's largest importer of crude oil, and concerns that oil supply might surpass demand by 2025. Last month, oil prices hit their lowest point since December 2021. Senior analyst Phil Flynn from the Price Futures Group noted that Tuesday’s pullback in prices was partially driven by the absence of new economic support from the Chinese government.

The views expressed in this article do not reflect the opinion of ICARO, or any of its affiliates.

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