 "Oil prices dip after 'limited damage' from Iran's attack on Israel; Here's why costs can still skyrocket")
Oil prices were lower in the early trading hours on Monday (April 15) after Iran’s retaliatory attack on Israel late on Saturday.
Brent crude - a key benchmark for oil prices internationally - was down, but trading closer to $90 a barrel on Monday morning.
On Friday, prices rose 1 per cent due to geopolitical tensions in West Asia which was driven by concerns over potential supply disruptions.
Prices rose in expectation of action by Iran, with Brent crude nearing a six-month high last week before settling at $90.45 a barrel on Friday, touching their highest levels since October.
Why oil prices are low after Iran’s counterattack on Israel?
Oil prices fell in the early trading hours on Monday as investors dialed back risk premiums following Iran’s attack which the Israeli government said caused limited damage.
“An attack was largely priced in the days leading up to it. Also the limited damage and the fact that there was no loss of life means that maybe Israel’s response will be more measured,” a report by Reuters quoted Warren Patterson, head of commodities strategy at ING, as saying.
Iran is currently the fourth-largest producer within the Organization of the Petroleum Exporting Countries (OPEC) and produces over 3 million barrels per day (bpd).
Patterson further said there is still a lot of uncertainty and “it all depends on how Israel now responds.”
Despite the limited damage in Iran’s attack on Israel, analysts were widely expecting at least a short-lived rally in prices on Monday morning, but that more significant and longer-lasting price effects from the escalation would require a material disruption to supply, such as constraints on shipping in the Strait of Hormuz near Iran.
Impact Shorts
More Shorts‘No immediate reaction in crude oil prices’
As per ANZ Research analysts, “strike on Iran’s embassy in Syria and Iran’s retaliation have raised tension in the Middle East. However, we don’t expect an immediate reaction in crude oil prices given ample spare capacity and an already elevated geopolitical risk premium.”
Israeli Defence Minister Yoav Gallant has said the confrontation with Iran is “not over yet”.
“Israel’s response will determine whether the escalation ends or continues. The conflict could still be contained to Israel, Iran and its proxies, with possible involvement of the US. Only in an extreme case do we see it realistically impacting oil markets,” analysts of ANZ Research said.
“Clearly, the oil market does not see the need to factor in any additional supply threat at this point,” Vandana Hari, an energy analyst, was quoted as saying by BBC.
“I think we’ll see naturally volatility. If there was to be some sort of counter-move by Israel, then that would, I think, rocket energy markets very much to the upside,” the report quoted Peter McGuire from trading platform XM.com as saying.
Iran’s attack involved more than 300 missiles and drones targetted towards Israel at the weekend after vowing retaliation for an attack on its consulate in the Syrian capital Damascus on April 1.
Israel has not said it carried out the consulate strike, but is widely believed to have been behind it.
With inputs from agencies
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