Israel's Decision Not to Target Key Iranian Facilities to Lower Oil Prices
Following the recent military actions in the Middle East, a decline in oil prices is anticipated with the reopening of trading on Monday. This expectation arose after Israel's targeted attacks on Iran over the weekend avoided impacting Tehran's oil and nuclear facilities. These strikes, which did not disrupt energy supplies, were part of Israel's response to the Iranian missile attack on October 1.
Last week, Brent and U.S. West Texas Intermediate crude oil futures saw a 4% increase under volatile trading conditions. Market fluctuations were influenced by the potential responses from Israel regarding Iran's earlier missile attack and uncertainties related to the upcoming U.S. elections.
The Israeli operation involved multiple jets launching attacks in three waves just before dawn on Saturday. These strikes targeted missile production facilities near Tehran and other military positions in western Iran. Despite the scale of the attacks, Iran reported only limited damage, indicating a measured approach by Israel.
Market analysts reacted to these developments with expectations of a potential decline in oil prices. The head of research at Onyx expressed relief on LinkedIn, noting that market concerns over Israel’s response have been alleviated. He also mentioned that the timing of the attacks could be potentially favorable for the U.S. administration, coming shortly after U.S. Secretary of State Antony Blinken's departure, as elections approach.
A market analyst at IG in Sydney pointed out that Israel's avoidance of oil infrastructure and the expectation that Iran would not retaliate has removed a layer of market uncertainty. This scenario could lead to a "buy the rumor, sell the news" reaction in crude oil futures markets, with West Texas Intermediate possibly returning to around $70 per barrel.
The analyst predicts that the geopolitical risk premium included in oil prices will quickly deflate, forecasting that Brent could likely return to the range of $74-75 per barrel.
A commodity analyst at UBS also anticipates a decline in oil prices on Monday due to Israel's measured response. He noted a belief that the market is not factoring significant risk premiums into oil prices, predicting that any downward movement in prices would be short-lived.
As markets prepare to open, these views suggest a temporary change in oil price dynamics due to recent developments in the Middle East.