The Israeli strikes were more limited than anticipated, targeting missile facilities while sparing oil infrastructure.
The easing of geopolitical tensions has led to a significant decrease in the oil risk premium, which had previously driven prices up.
Analysts suggest that if peace talks progress, oil prices could see further declines, potentially reaching $60 per barrel.
Economic uncertainties in China and high U.S. oil inventories continue to pressure oil prices downward.
If Iran does not retaliate, oil prices may stabilize or decline further as geopolitical tensions ease.
Increased production from OPEC+ could lead to a further oversupply in the market, putting additional downward pressure on prices.
If economic recovery measures in China fall short, demand for oil may weaken, contributing to lower prices.
Oil Prices Plunge Following Limited Israeli Strikes on Iran
Oil prices experienced a significant drop of over 5% on Monday, October 28, 2024, following Israeli airstrikes on Iran that did not target key energy infrastructure. Brent crude futures fell to $72.24, while West Texas Intermediate (WTI) dropped to $68. Analysts noted that the limited nature of the strikes, which focused on missile manufacturing facilities, alleviated fears of major disruptions in crude supply, leading to a decrease in the geopolitical risk premium that had previously inflated oil prices.
Market Reactions and Analyst Insights
The market's reaction was swift, with Brent and WTI both falling more than 4% in early trading, calming fears of a full-scale conflict and potential supply disruptions. Analysts, including Saul Kavonic from MST Markey, indicated that the market is now closely monitoring Iran's potential response to the strikes. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, have maintained their oil production policies, with plans to increase output starting in December 2024.
Future Outlook for Oil Prices
Despite the recent drop, market analysts warn that if geopolitical tensions escalate again or if Iran retaliates, oil prices could rebound. Stephen Innes from SPI Asset Management suggested that if peace talks gain traction in the Middle East, oil prices could potentially fall to as low as $60 per barrel. The ongoing economic challenges in China, a major crude oil importer, and the high inventory levels in the U.S. also contribute to the bearish outlook for oil prices.
