Oil Prices Dip After Muted Iranian Attack, Strong US Data

Geopolitical Tensions Ease, Focus Shifts to Interest Rate Hikes

by Victor Adetimilehin

Oil prices fell on Monday after initial concerns about a wider conflict in the Middle East subsided. This followed Iran’s weekend attack on Israel proving less disruptive than anticipated.

Brent crude futures for June delivery dropped 1%, settling at $89.54 a barrel. U.S. crude futures for May also dipped 1%, reaching $84.79 per barrel.

Reduced Geopolitical Risk Eases Oil Market Concerns

Oil prices had surged on Friday in anticipation of Iran’s retaliation for a recent air strike. However, Israel’s successful interception of the attack, which included over 300 missiles and drones, calmed anxieties about a potential regional conflict disrupting oil supplies.

“The effectiveness of Israel’s defense significantly reduced the perceived geopolitical risk,” explained Bob Yawger, director of energy futures at Mizuho bank.

Adding to the downward pressure on oil prices was robust US retail sales data released by the Commerce Department. This data suggests a potentially stronger US economy, which could lead to the Federal Reserve raising interest rates for a longer period. Higher interest rates typically weaken demand for oil.

“The key concern is potential demand destruction due to rising interest rates,” said Yawger.

Limited Impact on Supply, Focus on Measured Response

Further easing tensions, Iran declared its retaliation complete. Analysts like Viktor Katona from Kpler believe this has significantly reduced geopolitical anxieties. John Evans, an oil broker at PVM, even described the attack as “highly predictable.”

The Iranian strike, targeting Israel’s alleged air strike on its Damascus consulate, caused minimal damage due to Israel’s Iron Dome defense system. While Iran is a major oil producer within OPEC, exceeding 3 million barrels per day, previous Middle East conflicts, like the Israel-Hamas clashes in Gaza, haven’t significantly impacted oil supply.

“Unless the situation escalates to a point of disrupting supply, oil prices might see further decline over time,” said Amrita Sen, founder and director of research at Energy Aspects. However, this hinges on a measured response from Israel.

Looking Ahead: A Shift in Focus

The oil market’s focus has shifted from immediate geopolitical tensions to the broader global economic outlook. Strong US data raises concerns about potential interest rate hikes, which could dampen oil demand. With the Iranian attack proving less disruptive than expected, the market’s attention will likely turn towards future economic developments and their impact on oil consumption.

Source: Reuters

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