Oil slides over 4% as Israel’s attack on Iran unlikely to disrupt supplies

“The recent Israel military action is unlikely to be seen by the market as leading to an escalation that impacts oil supply,” Citi analysts wrote in a note on Monday, cutting the bank’s Brent oil forecast by $4 to $70 per barrel over the next three months.

Oil markets are also staring at a global oversupply.

“With Israel deliberately, and perhaps with some American encouragement, avoiding the targeting of crude oil facilities, the oil market is back to looking at an oversupplied market,” said Andy Lipow, president of Lipow Oil Associates.

Oil production has been increasing not just in key countries such as U.S., Canada and Brazil, but even among smaller players, such as Argentina and Senegal, he added.

“Oil prices will remain under pressure for the rest of this year, it may be difficult to see Brent crude oil prices reaching $80 in the foreseeable future,” Lipow told CNBC over email.

The risk premium has come off a few dollars per barrel, as the more limited nature of the strikes, including avoiding oil infrastructure, have raised hopes for a de-escalatory pathway, said Saul Kavonic, an energy analyst at MST Marquee.

The spotlight will now fall on whether Iran will counter the attack in the coming weeks, which would see risk premiums rise again, Kavonic told CNBC. He noted that the overall trend of the conflict still remains one of escalation, with a high scope for another round of attacks.

During a cabinet meeting on Sunday, Iranian President Masoud Pezeshkian emphasized Iran’s right to react to Israel’s attack.

“We do not seek war, but we will defend our country and the rights of our people. We will give a proportionate response to the aggression,” he said.

Market attention will now turn to Hamas‑Israel and Israel‑Hezbollah cease-fire talks that resumed over the weekend, according to Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia.

“Despite Israel’s choice of a low‑aggression response to Iran, we have doubts that Israel and Iran’s proxies (i.e. Hamas and Hezbollah) are on track for an enduring ceasefire,” Dhar wrote in a note.

Although the selloff is a result of relief that Israel did not hit Iranian oil facilities, Rapidan Energy founder Bob McNally suggested that the markets are not out of the woods just yet.

“Direct Israel-Iran conflict will likely persist. Israel signaled it is able and willing to target energy and nuclear targets in future strikes,” said McNally, who expects prices to remain volatile but rangebound.