Oil prices plunge after Israel’s limited retaliatory attack on Iran

Oil prices slid by more than 6% on Monday after Israel opted against attacking Iran’s oil and nuclear facilities in a retaliatory strike it carried out over the weekend.

Brent crude, the global benchmark, and West Texas Intermediate (WTI) futures both slid by more than 6% after markets opened Monday, with Brent down 6.3% to $71.25 a barrel and WTI down 6.7% to $67 – both the lowest prices of October.

Those losses wipe out the gains of more than 4% that the oil benchmarks saw last week as markets priced in elevated uncertainty over the upcoming U.S. election as well as the extent of Israel’s anticipated response to Iran’s ballistic missile attack on Oct. 1.

Israeli military aircraft carried out three waves of strikes on Iran before dawn on Saturday that targeted Iranian air defense systems, along with missile and drone bases and weapons production facilities.

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The geopolitical risk premium that had built up in oil prices in the lead up to Israel’s attack came off after the strikes left energy supplies unaffected, analysts said.

John Evans at oil broker PVM said there can be no doubt that Israel’s response was heavily influenced by the Biden administration amid the upcoming election.

Commonwealth Bank of Australia analyst Vivek Dhar said he doesn’t expect any speedy deescalation to the conflict in the Middle East.

“Despite Israel’s choice of a low-aggression response to Iran, we have doubts that Israel and Iran’s proxies (Hamas and Hezbollah) are on track for an enduring ceasefire,” he said in a note.

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Citi lowered its Brent price target for the next three months to $70 a barrel from $74, to factor in a lower near term risk premium, analysts led by Max Layton said in a note.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, kept oil output policy unchanged last month, including a plan to start raising output from December. The group will meet on Dec. 1 ahead of a full OPEC+ meeting.

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“Rhetoric from OPEC+ ministers in coming weeks around the unwinding of quotas will be a key driver for prices, with a postponement of the production increases becoming more likely due to the soft fundamental outlook and high break-even prices for most cartel members,” Panmure Liberum analyst Ashley Kelty said.

Reuters contributed to this report.