Analysts expect oil prices to fall when trading resumes on Monday after an Israeli strike on Iran over the weekend spared Tehran's oil and nuclear infrastructure and did not disrupt energy supplies.
Brent and West Texas Intermediate crude futures rose 4 percent last week as the market digested uncertainty surrounding the extent of Israel's response to an Iranian ballistic missile attack on Israel on Oct. 1 and the U.S. presidential election early next month.
Dozens of Israeli jets carried out three waves of strikes before dawn Saturday against missile factories and other sites near Tehran and in western Iran, in the latest exchange of fire in the escalating conflict between the Middle East rivals.
“The market can breathe a sigh of relief; the known unknown of Israel’s ultimate response to Iran has been revealed,” Harry Tchilinguirian, director of research at Onyx, said on LinkedIn.
Israel launched its attack after US Secretary of State Antony Blinken left, and the US administration could not have hoped for a better outcome with the US elections less than two weeks away.
Iran on Saturday downplayed the significance of Israel's air strike on Iranian military targets, saying it caused only limited damage.
“Israel is not attacking oil infrastructure, and reports that Iran will not respond to the strike remove the element of uncertainty,” said Tony Sycamore, market analyst at IG in Sydney.
He said it was very likely that we would see a 'buy the rumor, sell the truth' type of reaction when crude oil futures markets open tomorrow, adding that WTI could return to $70 a barrel.
Tchilinguirian expects the geopolitical risk premium built into oil prices to decline rapidly as Brent crude returns to $74-75 per barrel.
UBS commodities analyst Giovanni Staunovo expects oil prices to fall on Monday as Israel's response to the Iranian attack appears to have been limited.
But I expect this negative reaction to be only temporary, because I think the market has not priced in a significant risk premium.
