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Oil Prices Drop as Middle East Tensions Ease

by Krystal

Crude oil prices dipped at the start of the week following Israel’s retaliatory strike against Iran, which did not cause significant damage, according to Iranian sources, thereby reducing the immediate threat of escalating violence.

“The strikes were more limited and avoided key oil infrastructure, which has fueled hopes for a de-escalation. This has taken a few dollars off the risk premium per barrel,” commented Saul Kavonic, an energy analyst at MST Marquee, in an interview with Reuters.

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Israel specifically avoided targeting oil facilities and nuclear sites in Iran, sparking optimism that the Middle East could steer clear of a broader conflict that would threaten the region’s energy supplies to global markets.

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Clyde Russell of Reuters noted that the oil market interpreted the latest Israel-Iran exchange as a sign of cooling tensions, reflected by today’s drop in oil prices.

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“The targeted approach from Israel allows room for de-escalation. The price movement in oil this morning suggests the market shares this view,” wrote ING analysts Warren Patterson and Ewa Manthey. “While Iran’s response remains uncertain, Iranian officials have downplayed the impact of Israel’s strike.”

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Adding to the downward trend in oil prices, oil traders are also considering a potential surplus in supply coupled with weak demand, with China being a central concern. Despite OPEC+ production caps and a slowdown in U.S. oil output growth, demand remains tepid.

“We see the market as undervalued right now, with a chance OPEC+ may delay planned output increases beyond December,” Tim Evans, an energy analyst, told Reuters.

Israel’s actions on Saturday were largely seen as “underwhelming and proportionate,” said Harry Tchilinguirian, head of research at Onyx Capital Group, in a statement to Bloomberg. He added that weak economic data from China could soon dominate the narrative, potentially pushing oil prices even lower.

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