Brent and West Texas Intermediate crude futures rose four percent last week as the market absorbed uncertainty surrounding the scale of Israel’s response to a ballistic missile attack. Iran on Israel On October 1 and the US presidential elections that will be held early next month.
Dozens of Israeli aircraft carried out three waves of strikes before dawn on Saturday against missile factories and other sites near Tehran and in western Iran, in the latest exchange of bombings in the escalating conflict between the two rivals in the Middle East.
“The market can breathe a sigh of relief; the known unknown of Israel’s ultimate response to Iran has been revealed,” Harry Tchilinguirian, director of research at Onyx, said on LinkedIn.
He added, “Israel launched its attack after the departure of US Secretary of State Anthony Blinken, and the US administration could not have hoped for a better result with the US elections approaching in less than two weeks.”
Yesterday, Saturday, Iran downplayed the importance of the air attack carried out by Israel yesterday against Iranian military targets, saying that it caused only limited damage.
“Israel is not attacking oil infrastructure, and reports that Iran will not respond to the strike remove the element of uncertainty,” said Tony Sycamore, market analyst at IG in Sydney.
“It is very likely that we will see a ‘buy the rumor, sell the fact’ type reaction when crude oil futures markets open tomorrow,” he said, adding that WTI could return to the $70 per barrel level.
Chilinguirian expects the geopolitical risk premium built into oil prices to decline quickly with Brent crude returning to $74-75 per barrel.
Giovanni Staunovo, a commodity analyst at UBS, expects oil prices to decline tomorrow, Monday, as it appears that Israel’s response to the Iranian attack was limited.
He added, “But I expect this negative reaction to be only temporary, because I think the market has not taken into account a large risk premium.”
