At the week’s outset, oil prices plummeted over six per cent following Israel’s surgical strikes on Iran, which notably avoided hitting crude oil facilities in the OPEC member state. The operations thus lessened the potential for escalating hostilities in the area. Brent cruised under $72 per barrel (approximately €66), and West Texas Intermediate lingered around $68. In compliance with a directive from US President Joe Biden’s administration, the Israeli raid deliberately sidestepped oil, nuclear, and civilian infrastructures. It was a calibrated response to a missile salvo from Iran at the beginning of the month.
The effects of the changing political landscape became increasingly apparent on the markets. As well as declining oil prices, bullish options contracts no longer commanded a premium over bearish ones, a trend persisting since Iran’s retaliatory missile onslaught. Predicting lower conflict risks, Citigroup slashed their forecasts for Brent prices.
Despite these developments, Iran assured the global community that their oil installations were functioning as usual. However, Iran’s foreign ministry hinted that its retaliation would mirror the extent of the Israeli offensive. Following Iran’s October 1st missile attack, oil prices borne a war premium, propelling global Brent to over $80 a barrel earlier in October.
Nevertheless, oil prices are almost $20 less compared to the inaugural session post the October 7th attack, which instigated the conflict last year. This decrease can be attributed to downbeat Chinese demand and an anticipated glut early next year that has been suppressing prices in the recent past.
The market has to grapple with the upcoming avalanche of significant events, such as the US election, that will likely impact prices. OPEC+ plans are underway to gradually revive oil production in December, and any likely alteration to this timeline is being closely monitored by the market. Even though projected output expansion in the imminent future is minimal, it will augment supplies in a market that, according to the International Energy Agency, has no need for them.