Crude oil plummets more than 4% in the markets (a barrel of Brent falls to $72) due to the ‘blowout’ of the geopolitical risk premium that has been inflating the price of crude oil in recent months. This drop in crude oil comes after Israeli attacks on Iran have avoided oil facilities and other sensitive points. Furthermore, after the attack, Iran’s leaders downplayed the damage and left a somewhat ambiguous message: The answer should not be small or exaggerated. In this way, Joe Biden, president of the United States, has indicated that this could be the end of the military ‘coups’ between both countries, which is generating certain hopes in the region and sinking the price of oil: the worst of the conflict could have been left behind. This is deflating a risk premium that was at high levels (there was talk of between 20 and 30 dollars per barrel).
Oil has reached plummet more than 5% after Iran confirmed that its oil industry was operating normally following Israel’s attacks on military targets across the Persian country, in retaliation for a missile bombardment earlier this month. All this happened early last Saturday, when the Israeli Army launched what it called “precise attacks against military targets” of Iran, in retaliation, he indicated, “for the months of continuous attacks by the Iranian regime against the State of Israel.”
Furthermore, against all odds, Iranian authorities downplayed the attacks, which, according to their version, only caused “limited damage”. In this context, the Palestinian Islamist group Hamas, which de facto controls the Gaza Strip, has shown itself open to an agreement with Israel as long as Israeli Prime Minister Benjamin Netanyahu “maintains his commitment to what has already been agreed,” according to stated a senior official in the organization.
A measured response
“Israel’s measured and targeted response has raised hopes for a de-escalation”Warren Patterson, head of commodities strategy at ING in Singapore, writes in a note. “If we see some de-escalation, it would allow fundamentals to once again dictate price direction.”
Furthermore, andThe president of the United States, Joe Biden, expressed this Saturday his hope that the Israeli attacks against Iran will end a period of tension in the Middle East, which had raised fears about a regional war. “It seems that they have only hit military objectives. My hope is that this is the end,” Biden assured reporters in Pennsylvania, where he is to participate in several events before the November 5 elections.
Biden indicated that he had been previously informed about the Israeli attacks, in retaliation for the Iranian attack on October 1, which included up to 180 ballistic missiles against Israeli territory, which caused oil to explode that same day. The Israeli attack, launched at dawn on Saturday, caused the death of at least four Iranian soldiers, according to the Israeli Army in the last few hours.
The strength of oil supply
Beyond the geopolitics that drive crude oil today, the market faces a situation of solid supply that has put oil bulls in check for much of the year. Before the exchange of blows between Israel and Iran, Brent crude oil fell below $70, something totally unthinkable a few months ago, in a context of strong OPEC cuts and the endless war between Russia and Ukraine. Added to this is the threat from Saudi Arabia of sinking prices with its idle production capacity.
In this way, the price of Brent crude oil, the reference in Europe, drops 4.5%, to 72.5 dollars, according to data from Bloomberg. Likewise, West Texas Intermediate (WTI), the reference in the US, fell 4.47%, to $68.57.
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