Oil prices likely to fall after Israel shows restraint in retaliatory strikes on Iran: Report

Oil prices are expected to fall when trading resumes on October 28 as Israel’s retaliatory strike on Iran over the weekend bypassed Tehran's oil and nuclear infrastructure and did not disrupt energy supplies, Reuters reported quoting analysts. 

Brent and US West Texas Intermediate crude futures gained 4 percent last week in volatile trade as markets priced in uncertainty around the extent of Israel’s response to the Iranian missile attack on October 1 and the US election next month. 

“The market can breathe a big sigh of relief; the known unknown that was Israel’s eventual response to Iran has been resolved,” Harry Tchilinguirian, group head of research at Onyx said on LinkedIn. 

Scores of Israeli jets completed three waves of strikes before dawn against missile factories and other sites near Tehran and in western Iran, Israel’s military said in the latest exchange in the escalating conflict between the Middle East rivals. 

Tchilinguirian expects geopolitical risk premium that had been built into oil prices to deflate rapidly with Brent heading back towards $74-$75 a barrel. 

“Israel’s not attacking oil infrastructure, and reports that Iran won't respond to the strike remove an element of uncertainty,” Tony Sycamore, IG market analyst in Sydney, told Reuters. 

UBS commodity analyst Giovanni Staunovo also expects oil prices to be depressed on October 28 as Israel’s response to Iran’s attack appeared to have been restrained, as per the Reuters report. 

“But I would expect such downside reaction to be only temporary, as I believe the market didn’t price a large risk premium,” he added. 

Iran on October 26 played down Israel’s overnight air attack against Iranian military targets, saying it caused only limited damage. Iran had warned Israel that it would defend itself. Israel said Tehran would pay a heavy price if it retaliated. 

The United States, Germany and Britain demanded Tehran not escalate the conflict further. 

US President Joe Biden said he hoped “this is the end” after the pre-dawn Israeli strikes, noting that “it looks like they didn’t hit anything other than military targets”. 

The European Union called for all parties to exercise utmost restraint to avoid an “uncontrollable escalation”.