Oil prices drop 6% as tensions ease in Middle East

Oil prices dropped sharply on Monday after Iran refrained from announcing an immediate retaliation for Israel’s strikes on the country.
Both Brent and US West Texas Intermediate (WTI) crude futures hit their lowest levels since September 11, and by last night in New York, Brent crude, the international benchmark, had fallen $4.63, or 6.1 per cent, to $71.42 a barrel, while the US benchmark, WTI, was down $4.40, or 6 per cent, at $67.38.
Israel said it targeted military sites on Saturday in retaliation for a barrage of almost 200 ballistic missiles fired by Iran towards Israel on October 1.
Iran’s supreme leader, Ali Khamenei, said that the attacks by Israel, which killed at least four soldiers, should not be “exaggerated or downplayed” but he refrained from calling for an immediate retaliatory strike.
The fact that Israel avoided Iran’s oil and nuclear facilities in its attacks, combined with Khamenei’s remarks, assuaged fears that the conflict would spiral into a full-blown war in the Middle East and eased concerns about disruptions to oil supply.
The steep fall in oil prices dragged down the share prices of the big FTSE 100 energy groups. Shell and BP both closed down 1.4 per cent.
Citigroup, the US investment bank, lowered its Brent price target for the next three months to $70 a barrel from $74, factoring in a lower risk premium in the near term.
As tensions in the Middle East ease, at least in the short term, investors’ focus has moved to plans by the Organisation of the Petroleum Exporting Countries and allies including Russia (Opec+) to start raising output from December.
In a series of steps agreed since late 2022, Opec+ is cutting output by a total of 5.86 million barrels a day, or about 5.7 per cent of global demand.
Ashley Kelty, an analyst at Panmure Liberum, said: “Rhetoric from Opec+ ministers in coming weeks around the unwinding of quotas will be a key driver for prices, with a postponement of the production increases becoming more likely due to the soft fundamental outlook and high break-even prices needed for most cartel members.”