Oct 7 2024: Oil prices slipped on Monday following their steepest weekly rise in more than a year, as concerns over excess supply and softer demand outweighed fears of a potential Middle Eastern conflict impacting exports from the key oil-producing region.
By 06:45 GMT, Brent crude futures had declined by 28 cents, or 0.36%, to $77.77 per barrel, while U.S. West Texas Intermediate (WTI) futures dropped by 19 cents, or 0.26%, to $74.19 per barrel.
Last week, Brent surged over 8%, marking its strongest weekly gain since January 2023, while WTI soared 9.1%, the biggest rise since March 2023. The surge was fueled by concerns that Israel might retaliate against Iranian oil infrastructure after a missile attack on Israel by Iran on October 1.
Despite the rising tensions, some investors likely took profits, causing a pullback in oil prices.
“Technical profit-taking seems to be the most logical explanation,” said Priyanka Sachdeva, a senior market analyst at Phillip Nova, addressing the recent dip in prices. She added that the fear of Israeli retaliation on Iran continues to provide tailwinds for oil markets, as the risk of wider conflict in the Middle East remains high.
On Sunday, Israel conducted airstrikes on Hezbollah targets in Lebanon and the Gaza Strip, ahead of the one-year anniversary of Hamas’ October 7 attacks on Israel, which triggered the ongoing war. Israeli Defense Minister also stated that all options, including retaliation against Iran, are being considered.
Hezbollah rockets struck Haifa, Israel’s third-largest city, early Monday, leaving at least 10 injured, according to local reports.
Despite the geopolitical tensions, ANZ Research cautioned that the impact on oil supply may remain limited. “A direct attack on Iran’s oil infrastructure seems like the least likely response from Israel,” ANZ noted, emphasizing that geopolitical events have had a reduced impact on oil supplies in recent years.
OPEC+, the alliance of oil producers that includes Russia and Kazakhstan, has significant spare production capacity, which provides a buffer against potential supply disruptions. OPEC+ has been cutting production in recent years to support prices amid weak demand, but it could compensate for a complete loss of Iranian oil if necessary.
During its October 2 meeting, OPEC+ maintained its current output policy, with plans to gradually increase production from December. The group’s spare capacity and ongoing production cuts are expected to limit the upside for oil prices, especially in light of China’s uncertain economic recovery.