Oil prices dip on easing risk premium after Iran attack

Markets downplay risk of regional escalation after Iran attack, oil prices retreat

Oil prices slipped by close to 1% on Monday, reflecting reduced concerns of a regional escalation in the Middle East following Iran's attack on Israel over the weekend.

Brent crude futures for June delivery dropped by 99 cents to $89.46 a barrel by mid-morning, while West Texas Intermediate (WTI) for May delivery decreased by $1.05 to $84.61.

The fall follows a surge on Friday, where oil prices reached their highest point since October in anticipation of Iran's retaliatory strike, which involved over 300 missiles and drones, and was the first attack by on Israel by another country in over thirty years.

The attack initially stoked fears of a wider regional conflict potentially disrupting oil flows through the Middle East.

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Middle East concerns appear to cool as Iran declares “matter concluded”

However, sentiments appeared to cool after Iran declared the retaliation complete (“the matter can be deemed concluded”) suggesting a lower risk of further immediate conflict, according to a comment from Kpler analyst Viktor Katona shared with Reuters.

John Evans from the oil broker PVM described the attack "about as telegraphed a world event that people can remember”, indicating that markets — and oil prices — had time to adjust to such a scenario.

"They might as well have had big disco lights on them and towed banners with ‘come on ladies and gentlemen, please shoot me down’”, Evans told Reuters.

ING says oil prices had adjusted to reflect Iran attack beforehand

The assault, described by Iran as a response to an airstrike on its consulate in Damascus, resulted in minimal damage, largely thwarted by Israel's Iron Dome defense system.

Warren Patterson, head of commodities strategy at ING, commented on the developments’ impact on oil prices in the latest edition of the bank’s daily Commodities Feed:

"The market had already priced in some form of attack, while limited damage and no loss of life means the potential for a more measured response from Israel. How Israel responds is now the key uncertainty. [...]

While risks are clearly elevated, which should keep oil prices relatively well supported, oil supply remains intact for now. Therefore, we are leaving our ICE Brent forecast unchanged at US$87/bbl for the second quarter, until there is some clarity on how events play out”.

Iran produces over 3 million barrels per day as major producer within the Organization of the Petroleum Exporting Countries (OPEC). So far, the ongoing tensions in the Middle East, particularly surrounding the Israel-Hamas conflict in Gaza, have not significantly impacted oil supply.

"If the crisis does not escalate to a point that creates supply disruptions, then there will be downside risk over time, but only once it becomes clear Israel has chosen a measured response," Amrita Sen, founder and director of research at Energy Aspects, told Reuters.

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