Oil futures: Crude prices tumble 6% on Iran risk premium unwind

28 Oct 2024

Quantum Commodity Intelligence – Crude oil futures Monday were sharply lower after Israel's attacks on Iran were coordinated to avoid oil and nuclear sites, easing fears of a major escalation.

Front-month Dec24 ICE Brent futures were trading at $71.44/b (1830 GMT), compared to the intraday low of $71.18/b and Friday's settle of $76.05/b.

At the same time Dec24 NYMEX WTI was trading at $67.41/b, versus Friday's settle of $71.78/b.

Over 100 Israeli fighter planes targeted largely military facilities across Iran in a move that saw most of the geopolitical risk unwinding as the wider threat to regional oil supplies diminished in what analysts viewed as a well-telegraphed operation.

"Israel's strike, carefully avoiding energy sites, has softened fears of a full-scale conflict with Iran," said Stephen Innes of SPI Asset Management.

"Even more telling is Iran's response, downplaying the attack's impact and signalling that its warnings may have deterred any more aggressive action from Israel," he added.

According to a local TV report, Israel had initially planned to strike Iran's oil and natural gas facilities but changed plans to focus on military facilities after US pressure.

Before the retaliatory strikes, Iranian officials had hinted at a blockade of the strategic Strait of Hormuz should oil or nuclear facilities be hit.

Tehran also said the strikes had caused limited damage, which investors took as a signal that Iran was looking to de-escalate hostilities.

Forecast

In response, Citi lowered its Q4 Brent price outlook from $74/b to $70/b, factoring in a reduced risk premium for oil 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 said in a client note on Monday.

Meanwhile, ceasefire talks kickstarted over the weekend in Doha to find a solution to the ongoing conflicts between Israel and Hamas/Hezbollah militants.

Elsewhere, China has reported its steepest fall in industrial profits in more than three years, reigniting speculation that Beijing will announce a further stimulus to boost ailing growth rates.

According to data released by the National Bureau of Statistics on Sunday, profits for major industrial firms tumbled 27% y-on-y for September.