A day after Iran’s retaliatory drone and missile attack targeting Israeli territory, the oil market is in anticipation of whether fallout from a broader regional conflict could impact crude traffic through the Middle East.
Israel’s response to the assault, which Iran says was an act of self-defense after its diplomatic compound in Syria was attacked on April 1, could potentially intensify the cycle of escalation.
But as it stands, there was a rather muted response to the latest developments, with oil prices slumping slightly during Monday trade. Brent futures for June dipped 0.2%, to reach $90.25 a barrel. West Texas Intermediate (WTI) futures for May delivery went down 0.4% to $85.33 a barrel.
One of the concerns uppermost in the current volatile situation is supply risk, according to media-cited analysts. Supply could be affected by factors such as a response from Israel targeting Iran's energy infrastructure, hiked up enforcement of oil sanctions on Iran, or shipping constraints in the Strait of Hormuz near the Islamic Republic, as per an ING client note.
Any further escalation could add to the existing volatility from Houthi attacks targeting Israeli, British and American commercial ships in the Red Sea, and the ongoing Israeli offensive in Gaza.
However, Tehran indicated after the attack that it deemed the matter “concluded.” Israel’s war cabinet meeting ended on Sunday without a decision on a response, while Tel Aviv's allies have been urging for de-escalation.
Unless any further tit-for-tat assaults disrupt crude flows, OPEC+ has sufficient production capacity to control any oil price rally, according to Bloomberg analysts.
Amid falling global demand for oil, notwithstanding the ongoing European security crisis, Houthi attacks targeting Israeli, British, and American commercial ships in the Red Sea, and the ongoing Israeli operation in Gaza, OPEC+ rolled over first-quarter voluntary output cuts of 2.2 million barrels per day (bpd) into the second quarter, to remain in place until at least the end of June, joining the existing 3.66 million bpd of cuts agreed in 2022.
At the time, leading commitments to cut were from Saudi Arabia (1 million bpd), Russia (471,000 bpd, in addition to 500,000 bpd announced in April 2023 and extended to December 2024), Iraq (220,000 bpd), the UAE (163,000 bpd), Kuwait (135,000 bpd), Kazakhstan (82,000 bpd), Algeria (51,000 bpd), and Oman (42,000 bpd).
But there is speculation that the cartel might opt to increase production in the wake of its June meeting. This is something that appeared to be hinted at in its April 11 oil report, which stated that “robust oil demand outlook for the summer warrants careful market monitoring.”
It is believed that most OPEC+ countries currently favor an oil price closer to $90 a barrel - well under the triple-digit level.