The oil market is bracing for a potential downturn when trading resumes on Monday, as Israel’s retaliatory strike on Iran over the weekend deliberately avoided targeting Tehran’s oil and nuclear infrastructure, thereby preventing any disruptions to energy supplies, according to analysts ¹ ². This development has significantly alleviated concerns about potential supply chain disruptions.
Last week, Brent and U.S. West Texas Intermediate crude futures experienced a 4% surge amidst volatile trading, driven by uncertainty surrounding Israel’s response to the Iranian missile attack on October 1 and the impending U.S. election ¹ ². However, with Israel’s strategic strike now underway, market anxiety has begun to dissipate.
On Saturday, Israeli jets launched a series of three strikes against missile factories and key sites near Tehran and western Iran, marking the latest escalation in the longstanding conflict between the Middle Eastern rivals. Harry Tchilinguirian, group head of research at Onyx, noted on LinkedIn, “The market can breathe a big sigh of relief; the known unknown that was Israel’s eventual response to Iran has been resolved.”
Tchilinguirian also highlighted the well-timed nature of Israel’s attack, occurring after U.S. Secretary of State Antony Blinken’s departure, which could not have yielded a more favorable outcome for the U.S. administration, particularly with the U.S. elections looming in less than two weeks.\
In response to the Israeli air attack, Iran downplayed the damage, describing it as limited. Tchilinguirian anticipates a “buy the rumour, sell the fact” type reaction when crude oil futures markets reopen, potentially pushing WTI prices back to $70 per barrel. He also expects the geopolitical risk premium built into oil prices to deflate rapidly, with Brent prices likely returning to the $74-$75 per barrel range.
UBS commodity analyst Giovanni Staunovo shares similar expectations, forecasting depressed oil prices on Monday due to Israel’s restrained response to Iran’s attack. However, Staunovo believes the downturn will be temporary, as the market had not factored in a substantial risk premium.
As the oil market navigates this complex geopolitical landscape, investors and analysts will closely monitor price fluctuations and potential shifts in global supply dynamics.
