Crude Oil Prices Likely To Drop After Israel Strike On Iran, Brent Seen Around $75/bbl, What Analysts Say?

Oil prices are poised for a downward adjustment when trading resumes on Monday, following Israel's restrained retaliatory strikes against Iran over the weekend. The Israeli airstrikes, which targeted Iranian missile facilities and military assets rather than oil or nuclear infrastructure, did not disrupt energy supplies, easing tensions in the volatile Middle East and stabilizing the oil market.

Brent and West Texas Intermediate (WTI) crude futures both surged approximately 4% last week as market sentiment fluctuated in response to the escalating tensions in the region. Investors were particularly anxious about how Israel might respond to an Iranian missile attack on October 1, especially with the US presidential election looming next month.

According to a Reuters report, the Israeli air raids involved scores of jets conducting three waves of strikes near Tehran and western Iran. The primary targets were believed to be missile factories and other military sites, with no impact reported on Iran's oil facilities. The US administration, which had recently sent Secretary of State Antony Blinken to the region, appeared to anticipate and support Israel's restrained response. Commenting on the situation, Harry Tchilinguirian, head of research at Onyx, said, "The market can breathe a big sigh of relief; the known unknown that was Israel's eventual response to Iran has been resolved."

This timing of the airstrikes - strategically following Blinken's diplomatic visit - appeared to signal a coordinated approach, minimizing risks for the global oil market in a sensitive period leading up to the US elections. For market analysts, the absence of a further escalation suggests a temporary lull in oil price volatility.

The market's reaction to the news is expected to deflate some of the geopolitical risk premium that had been priced into oil values last week. Tony Sycamore, market analyst at IG in Sydney, noted, "Israel's not attacking oil infrastructure, and reports that Iran won't respond to the strike remove an element of uncertainty." Sycamore suggested a "buy the rumour, sell the fact" scenario, with WTI prices likely adjusting back towards $70 per barrel, while Brent prices may stabilize around $74-$75.

Adding to this sentiment, UBS commodity analyst Giovanni Staunovo indicated that the restrained nature of Israel's actions would likely depress oil prices initially. However, Staunovo added, "I would expect such a downside reaction to be only temporary, as I believe the market didn't price a large risk premium."

While the weekend developments in the Middle East have introduced temporary calm to oil markets, continued vigilance remains essential. Geopolitical tensions still loom over the region, and with global events such as the upcoming US elections and volatile economic policies in other oil-producing countries, uncertainty could persist.

*Inputs from Reuters*