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Crude oil futures fell Monday as traders awaited Israel’s response to an Iranian missile and drone attack over the weekend that caused little damage, but investors fear the scale of the assault may leave Israel with no choice if not to react.
That of Israel Military chief Lieutenant General Herzi Halevi said his country would respond to Iran’s attack, but did not say when or how.
“The outlook for oil appears to hinge on the Israeli response to the attack,” said JP Morgan analysts, including Natasha Kaneva, and “with bellicose rhetoric coming from both sides, markets could continue to place a sizable premium on the price of oil in the immediate term.”
Considering that the assault is the first time Iran has directly struck Israel from Iranian territory, JPM analysts called it “a dramatic departure for Tehran, which until now has preferred to operate by proxy, [could] potentially rewrite the rules of engagement between the two countries and could trigger an Israeli response that threatens full-scale regional war.”
Following the attack, Citi analysts raised their near-term oil price forecasts to $88 a barrel from the highest risk premium of $80, but believe the current market has not sufficiently priced in the potential continuation of an all-out conflict between Iran and Israel. this could push oil to $100 a barrel, while any easing of tension could see prices drop to $70 or $80.
Société Générale raised its second-quarter forecast for Brent crude to $91 a barrel and WTI to $87.50 a barrel, saying it expects geopolitical risk to be incorporated into prices in the near future.
“We continue to view US-Iran direct military action as an extreme risk, its probability increased by 5% to 15% with crude oil prices in such a scenario easily exceeding $140,” he said. called SocGen.
Nymex Front-Month Crude (CL1:COM) for May deliveries is closed -0.3% at $85.41/bbl, while first-month June Brent crude (CO1:COM) ended -0.4% at $90.10/barrel.
ETFs: (NYSEARCA:USE), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)
Oil benchmarks gained ground on Friday in anticipation of Iran’s attack, with prices rising to their highest levels since October.
The Biden administration will likely tap oil from the U.S. Strategic Reserve as fuel demand is expected to hit a new post-pandemic high with millions of Americans preparing to hit the road next summer when demand peaks , said Macquarie oil and gas strategist Vikas Dwivedi. Bloomberg.
“The government will have to release oil from the SPR very aggressively to tame prices,” Dwivedi said, adding “there are not many tools available and this is one of the most effective.”
RBOB gasoline prices have risen by nearly a third year to date along with a rally in crude oil prices, but demand is expected to rise while fuel production may fall short of expectations as years of delayed maintenance from part of the refineries could lead to failures, Dwivedi said.