Crude oil futures declined by more than 4% on Tuesday as the market paused following a recent rally driven by increased geopolitical risks. Traders are now waiting to see how Israel will respond to Iran.
Tamas Varga, an analyst at the oil broker PVM, noted in a Tuesday report, “Oil can only rise so long based on perceptions without actual supply disruptions.”
Oil prices surged over 7% since last week’s missile strikes, where Iran launched around 180 ballistic missiles at Israel. This escalation raised concerns that Israel might retaliate against Iran’s oil industry.
However, President Joe Biden has publicly advised Israel against targeting Iran’s oil infrastructure. According to officials speaking to The New York Times, Israel is more likely to focus on military and intelligence targets in Iran first.
The Jerusalem Post also reported that Israel is expected to prioritize military and intelligence facilities in its response.
Israel’s Defense Minister, Yoav Gallant, is scheduled to meet with U.S. Secretary of Defense Lloyd Austin at the Pentagon on Wednesday to discuss ongoing security developments in the Middle East, according to press secretary Maj. Gen. Pat Ryder.
Here are the closing energy prices from Tuesday:
West Texas Intermediate (WTI)
November contract: $73.57 per barrel, down $3.57 (4.63%). Year-to-date, U.S. crude has increased over 2%.
Brent
December contract: $77.18 per barrel, down $3.75 (4.63%). Year-to-date, the global benchmark remains relatively stable.
RBOB Gasoline
November contract: $2.0681 per gallon, down 3.98%. Year-to-date, gasoline prices have decreased by more than 1%.
Natural Gas
November contract: $2.733 per thousand cubic feet, down 0.47%. Year-to-date, natural gas prices have risen nearly 9%.
Manish Raj, managing director of Velandera Energy Partners, commented on the situation, saying, “War sirens in the Middle East have attracted oil traders looking to profit from the surge in prices.”
He added, “Experienced investors have seen this scenario before. They tend to sell during the war hype and buy back when prices stabilize.”
The market also reacted negatively after Chinese officials did not announce new stimulus plans during a Tuesday press briefing.
Before the recent tensions in the Middle East, the market was characterized by pessimism due to weak demand in China, the world’s largest crude importer. Concerns grew that oil supplies might outstrip demand by 2025. In early September, oil prices had fallen to their lowest levels since December 2021.
Svetlana Tretyakova, a senior oil market analyst at Rystad Energy, told CNBC, “Concerns about China’s demand continue due to the lack of stimulus, while the conflict in the Middle East has not resulted in any supply disruptions.”
She also pointed out that the price drop might reflect profit-taking after two weeks of gains rather than being driven solely by market fundamentals.
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