Oil Reduces Gains Following Largest Weekly Increase in Over a Year, Reports Reuters

Oil Prices Dip Following Significant Weekly Gains Amid Middle East Tensions

Oil prices experienced a reduction in early trading on Monday after reaching their largest weekly increase in over a year, driven by escalating fears of a potential war in the Middle East.

Brent crude futures decreased by 43 cents, or 0.5%, settling at $77.62 per barrel around 0015 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures fell by 35 cents, also a 0.5% drop, to $74.03 per barrel.

In the previous week, the Brent contract saw an increase of over 8%, marking the most significant weekly rise since January 2023, while WTI experienced a 9.1% gain, the highest since March 2023.

Independent market analyst Tina Teng noted that the price decline may be attributed to profit-taking after last week’s surge. She added that the oil market is likely to face continued upward pressure due to concerns over Israel’s potential responses to Iran, emphasizing that geopolitical tensions are increasingly influencing market trends.

On Sunday, Israel launched strikes against Hezbollah targets in Lebanon and the Gaza Strip, coinciding with the anniversary of the Hamas attacks on October 7 that initiated the current conflict. Israel’s defense minister stated that all options for retaliation against Iran remain open following a missile attack from Iran targeting Israel in response to Israeli actions in the region.

Israeli police reported that rockets from Hezbollah struck Haifa, Israel’s third-largest city, early on Monday.

Despite the recent rise in oil prices, ANZ Research indicated that the overall impact of the conflict on oil supply is expected to be minimal. Their analysis suggested that a direct assault on Iranian oil facilities is unlikely, as it could harm Israel’s relations with international partners and provoke a stronger retaliation from Iran, which would have little to lose if its oil revenue were disrupted.

Moreover, the research pointed out that the influence of geopolitical events on oil supply has diminished in recent years, resulting in a smaller geopolitical risk premium in the oil markets. Additionally, OPEC’s spare capacity of 7 million barrels per day offers a safety net.

OPEC and its allies, including Russia and Kazakhstan, possess significant spare capacity due to production cuts in recent years aimed at supporting prices amid weak global demand.

The producer group has sufficient spare capacity to counteract a complete loss of Iranian supply should Israel attack its facilities; however, it could face challenges if Iran retaliates against the oil installations of neighboring Gulf countries.

During their last meeting on October 2, OPEC and its allies decided to maintain their oil output policy, which includes plans to increase production starting in December.