Oil Edges Lower as Israel Weighs Up Response to Iranian Attack

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A dilapidated oil rig on Lake Maracaibo in Cabimas, Venezuela, on Friday, Dec. 3, 2021. Just over a year ago, international oil markets dismissed Venezuela as a catastrophe too beaten down and too mismanaged ever to regain relevance, but with crude prices spiking, Venezuela’s oil industry is mounting an unexpected recovery at the most opportune time. Photographer: Gaby Oraa/Bloomberg

Oil edged lower even as tensions in the Middle East persisted, with traders waiting to see how Israel would respond to Iran’s weekend attack.

Brent crude fell below $90 a barrel after ending little changed on Tuesday, while West Texas Intermediate was near $85. Israel has vowed to respond against Tehran for the unprecedented drone and missile attack, although the US and Europe have urged restraint.

Crude has surged this year as geopolitical risks in the Middle East and Russia, as well as OPEC+ output cuts, combined to push prices higher. Fresh comments on Tuesday from Federal Reserve Chair Jerome Powell, however, signaled that policymakers will wait longer than previously anticipated to cut US interest rates. That’s likely to be a headwind for wider energy demand.


While headline price movements are muted, oil options markets are flashing warnings. Bullish call options are trading near the widest premium to opposing puts since October — when the Israel-Hamas war began — as trading volumes of calls soar. Traders piled into over 3 million barrels worth of options contracts in a bet that US oil would spike to $250 a barrel by June.

“Our base case is one where tensions remain contained, avoiding a wider conflict that disrupts oil supply,” said Han Zhong Liang, investment strategist at Standard Chartered Plc. Iran’s apparent restraint, with its statement that the matter was concluded, as well as diplomatic efforts between Israel and its allies may mean that “any such geopolitical risk premium is likely to be small,” Han added.

Stockpiles were also in focus after the American Petroleum Institute reported a rise of more than 4 million barrels in nationwide US inventories last week, although gasoline levels declined, according to people familiar with the figures. Official data are due later Wednesday.

©2024 Bloomberg L.P.

By Yongchang Chin


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