Oil eases despite Iran attacks on Israel; Asian bourses rattled

SINGAPORE (ICIS)–Oil prices eased on Monday as Iran’s attacks on Israel over the weekend were largely priced in by the market, according to analysts, but Asian equities tumbled amid concerns over recent escalation of geopolitical tensions in the Middle East.

Product ($/barrel)	Latest (02:33 GMT)	Previous	Change
Brent June	90.24	90.45	-0.21
WTI May	85.33	85.66	-0.33

Concerns over a wide regional conflict in the Middle East sent Japan’s benchmark Nikkei 225 index falling by 1%, South Korea’s KOSPI slipping by 1.69% and Hong Kong’s Hang Seng index declining by 0.79%, as of 02:45 GMT.

“The [oil] market had already priced in some form of attack, while limited damage and no loss of life means the potential for a more measured response from Israel,” Dutch banking and financial services provider ING said in a note on Monday.

“While Iran considers the altercation ‘concluded’, markets will have to wait to see how Israel responds.”

Israel’s five-member war cabinet convened on 14 April to deliberate on potential responses, but no decision was reached due to disagreements over the timing and scale of any action, according to news agency Reuters.

Iran launched on 13 April missile and drone attack on Israel involving over 300 projectiles.

Of the 170 drones and 30 cruise missiles launched by Iran, none entered Israeli territory, while a small number of 110 ballistic missiles reached Israel, Israel military spokesman – rear admiral Daniel Hagari said in a televised statement.

Oil benchmarks had climbed on 12 April to their highest levels since October as players were anticipating Iran’s retaliatory strike on Israel, which the Middle East country blames for fatal strikes at its embassy in Damascus, Syria on 1 April. Israel has neither confirmed nor denied involvement in the incident.

Worries over tightening global supply, as well as possible supply disruption amid escalation of regional conflict in the Middle East, have been driving up crude prices since late last year.

Iran had stated that its actions were in response to an attack on an Iranian diplomatic facility in Damascus which killed a high-ranking member of Iran’s Islamic Revolutionary Guards and eight other officers.

For the week ended 12 April, however, crude prices shed around 1% after the International Energy Agency (IEA) revised down its global oil demand growth forecast to 1.2 million barrels/day from 1.3 million barrels/day previously.

SUPPLY RISKS REMAIN
Meanwhile, the US might intensify its sanctions on Iran, potentially leading to a reduction in oil supply ranging from 500,000 to 1 million barrels per day and keep the oil market in a deficit for the rest of the year, according to ING.

Iran pumps a little over 3m barrels/day of oil currently and is the fourth largest producer within OPEC.

There is also the risk that Israel’s response includes targeting Iranian energy infrastructure, which could translate to even more significant supply losses.

“Finally, if we were to see further escalation, there is the risk that Iran would attempt to disrupt or block oil flows through the Strait of Hormuz, through which roughly 20 million barrels per day of oil moves,” ING said.

Amid potential significant supply disruptions, the US could tap into its strategic petroleum reserves to mitigate any shortfall, according to ING.

Additionally, OPEC holds over 5 million barrels/day of unused production capacity, which could be activated if needed, it said.

Should oil prices surge due to supply losses, it is expected that OPEC would utilize some of this spare capacity to stabilize the market, ING said.

OPEC and its allies (OPEC+) are due to meet on 1 June in Vienna, Austria to discuss output policy. The group has maintained their output cuts up to end-June.

“While risks are clearly elevated, which should keep oil prices relatively well supported, oil supply remains intact for now,” ING added.

Focus article by Nurluqman Suratman

Thumbnail image: Flares from explosions in the sky over Jerusalem as Israel’s Iron Dome anti-missile system intercepts missiles and drones from Iran on 14 April 2024. (Xinhua/Shutterstock)