Oil prices fell on Tuesday, taking a breather from a rally in the earlier session, while market players practiced caution on supply concerns amid the ongoing war between Israel and the Palestinian militant group Hamas.
December contract Brent crude oil futures dropped 0.49% to $87.72 per barrel, while the US West Texas Intermediate (WTI) crude oil futures for November delivery lost 0.47% to $85.97 per barrel.
The global and US oil benchmarks gained nearly $4.00 on Monday as the geopolitical risk in the Middle East brought about by the Israeli-Palestinian conflict increased traders’ worries that the spat may impact nearby oil-producing countries.
Analysts said significant uncertainty remains in the oil markets after the assault on Israel over the weekend, adding that markets are now considering a risk premium.
Israel is a small producer of crude oil, but markets are concerned over the fight disrupting supply in the Middle East and worsening an expected shortage for the remainder of 2023.
The war has reportedly led to a shutdown of the country’s Ashkelon port and oil terminal.
Focus on Iran’s Involvement in Oil Markets in the Conflict
White House national security spokesperson John Kirby stated on Monday that Iran is complicit in the regards that it “has long supported the Palestinian militants and other terrorist networks through the region with resources capabilities training.”
However, Kirby said they have no specific proof of such attacks. US Secretary of State Antony BlinkenIran has also stated that Washington has no direct knowledge of Iran being responsible for the attack on Israel.
Should the US obtain proof directly linking Iran, a swift cut to the country’s oil exports could be expected, according to energy analyst Vivek Dhar.
If Iran’s involvement is confirmed, it could drive oil prices up as Washington is likely to employ more stringent oil sanctions against the country, further tightening the market.
While Brent is currently seen stabilizing between $90 and $100 per barrel in the fourth quarter of 2023, the spat between Israel and Hamas raises the potential for Brent futures to trade at $100 per barrel and higher.
In more optimistic news for oil supply, five sources said the US and Venezuela have reportedly moved forward with discussions that may offer Caracas sanctions relief.
The potential solution involves having one more foreign oil company take Venezuelan crude oil for debt repayment, provided President Nicolas Maduro continues talks with the Mexican opposition.
