Oil markets breathe out after Israel's limited strike
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Oil prices fell sharply to start the week as traders weighed Israel's weekend retaliation for Iran's Oct. 1 missile strike — and what might follow.
Why it matters: The market seems to see Israel's avoidance of Iranian oil and nuclear sites as moving away from large-scale confrontation.
Driving the news: Brent crude prices are down roughly 5.5% to $71 per barrel this morning.
What they're saying: "The more targeted response from Israel leaves the door open for de-escalation and clearly the price action in oil this morning suggests the market is of the same view," ING analysts said in a note.
The big picture: Oil's latest decline underscores a longer-term trend.
- The geopolitical risk premium during the Middle East crisis over the last year has been relatively muted.
- That's despite unpredictable conflict so close to major producing regions.
The intrigue: A recent piece in the Atlantic digs into why the recent hostilities haven't pushed prices far higher.
- James Surowiecki flags the U.S. production surge and policymakers' increased appetite for using the Strategic Petroleum Reserve among the reasons why.
- Elsewhere, China's economy — soft these days anyway — is less structurally tethered to oil as EVs rise.
Between the lines: It's psychological, too, Surowiecki writes, musing that resilience itself "breeds resilience."
- "Because traders are confident that the market will be able to deal with conflict, they're more likely to assess risk in a cool-headed fashion, rather than a panicky one."
Yes, but: Huge upside risks remain in the collision between Israel and Iran (and its proxies), ClearView Energy Partners said in a note.
- ClearView doesn't rule out escalation that damages energy sites in the region.
- And Israel's "repeated demonstrations of intelligence and military capabilities" could lead Iranian leaders to conclude their national security "depends on 'breaking out' towards a nuclear weapon."
What we're watching: Fresh economic info that could move prices, with Chinese manufacturing data and U.S. employment numbers arriving late this week.
