Oil prices experienced a decline on Tuesday after a more than 4% surge in the previous session. Traders remained cautious, closely monitoring potential supply disruptions due to military clashes between Israel and the Palestinian Islamist group Hamas.
Brent Crude and West Texas Intermediate (WTI) Crude
Brent crude, the international benchmark, fell by 30 cents, or 0.3%, to reach $87.85 per barrel by 0330 GMT. Simultaneously, U.S. West Texas Intermediate crude (WTI) eased by 31 cents, or 0.4%, to $86.07 per barrel. The surge in oil prices on the previous day was driven by concerns that the conflict in the Middle East could extend beyond Gaza and impact the oil-rich region.
Uncertainty in the Markets
Analysts from ING noted that there is still a significant amount of uncertainty in the markets following the weekend’s attacks in Israel. They pointed out that oil markets are now factoring in a risk premium due to the ongoing tensions. If reports of Iran’s involvement are confirmed, this could further boost oil prices, as the United States might enforce oil sanctions against Iran more rigorously, tightening an already constrained market.
While Israel itself has minimal crude oil production, market concerns revolve around the potential for the conflict to escalate, disrupting Middle East oil supplies and exacerbating an anticipated supply deficit for the remainder of the year. Reports indicated that Israel’s port of Ashkelon and its oil terminal had been shut down in the wake of the conflict.
Iran’s Role and Implications
Although the United States currently lacks intelligence or evidence directly linking Iran to the attacks, a White House spokesperson suggested Iran’s complicity. If concrete evidence emerges implicating Iran, it could lead to an immediate reduction in Iran’s oil exports.
Potential Price Stabilization and Supply Relief Talks
Some analysts believe that Brent oil may stabilize between $90 and $100 per barrel in the fourth quarter of 2023. However, the ongoing conflict between Palestine and Israel raises the risk of Brent futures reaching and exceeding $100 per barrel.
On a more positive note for oil supply, discussions between Venezuela and the U.S. have made progress. This could potentially provide sanctions relief to Caracas by allowing at least one additional foreign oil company to purchase Venezuelan crude oil under specific conditions.
