Oil Prices Drop Over 1 Percent as Geopolitical Tensions Ease
In a dramatic turn of events, oil prices plunged by more than 1 percent on Monday as the focus shifted to market fundamentals. The recent strike by Israel on Iran seemed to have minimal impact on the risk of further hostilities, causing a significant drop in prices, according to Reuters.
Brent futures took a hit, falling $1.21, or 1.4 percent, to $86.08 a barrel by 9:55 a.m. Saudi time. Meanwhile, the US West Texas Intermediate crude contract for May, set to expire on Monday, saw a decrease of 97 cents, or 1.2 percent, landing at $82.17 a barrel. The June contract also experienced a drop of $1.23, closing at $80.99 a barrel.
Market strategist at IG, Yeap Jun Rong, commented on the situation, stating, “Brent crude prices failed to retain their initial surge, with broad expectations that geopolitical tensions between Israel and Iran may fizzle off given Iran’s tamed response.” He added, “With that, markets continue to unwind the geopolitical risk premium tied to potential supply disruptions, which seems more unlikely at the current point in time.”
The initial surge in oil prices on Friday, following reported explosions in Iran, was short-lived as Tehran downplayed the incident and showed no intention of retaliation. Additionally, rising US crude stocks put pressure on selling, with inventories rising by 2.7 million barrels, nearly double analysts’ expectations.
Independent market analyst Tina Teng highlighted economic concerns as a bearish factor in the crude market, attributing the pressure to a large build in US stockpiles and a strong dollar influenced by a hawkish Fed. The strong dollar makes oil more expensive for holders of other currencies.
Despite the passing of an aid package for Ukraine and Israel by the US House of Representatives, markets remained unfazed as the impact of potential measures against Iran and its oil production depends on interpretation and implementation. ANZ analysts noted that volatility in the Middle East will continue to keep oil markets on edge.
Recent events, including a blast at an Iraqi military base and the downing of an Israeli drone by Hezbollah in Lebanon, have added to the tension in the region. With ongoing exchanges of fire between Israeli forces and Hezbollah, concerns about further escalation are mounting.