Oil prices are expected to rise on Monday following Iran’s attack on Israel over the weekend, but further gains could depend on what retaliatory measures Israel and the West choose, it said. analysts said on Sunday.
Iran launched explosive drones and missiles toward Israel late Saturday in apparent retaliation for Israel’s April 1 attack on its consulate in Syria. This is the first direct attack on Israeli territory, raising concerns of a broader regional conflict.
Concerns about Iran’s response to the attack on its Damascus embassy compound supported oil last week, pushing global benchmark Brent crude to $92.18 a barrel on Friday, its highest since October. This was a contributing factor.
It closed the day up 71 cents at $90.45, while U.S. West Texas Intermediate CLc1 crude oil futures rose 64 cents to $85.66. Trading is closed on Sundays.
“It’s natural to expect prices to rise once trading resumes,” said Tamas Varga of oil broker PVM. “That said, so far there has been no impact on production and Iran has said that ‘this issue can be considered resolved.’
“However intense and painful the initial market reaction may be, the rally is likely to be short-lived unless there is a significant disruption of supply from the region.”
US President Joe Biden said he would convene a summit of the Group of Seven major powers on Sunday to coordinate a diplomatic response to the Iranian attack.
“This is the first time Iran has attacked Israel from its territory, so oil prices could spike early on,” said Giovanni Staunovo, an analyst at UBS.
“How long the backlash will last… depends on Israel’s reaction,” Staunovo added. “Today’s G7 virtual meeting also needs to be monitored to see if it targets Iranian oil exports.”
Iran has sharply increased its oil exports, a major source of revenue, under President Joe Biden’s administration. Exports fell sharply under the administration of Biden’s predecessor, Donald Trump, who is expected to run against Biden in the November presidential election.
The Biden administration has imposed sanctions on Iran, saying it is not encouraging Iran to expand its exports.
A decline in Iranian exports could lead to further increases in oil prices and U.S. gasoline prices, a politically sensitive topic ahead of the election.
Another notable factor is the impact on shipping through the Strait of Hormuz, through which about one-fifth of the world’s total oil consumption passes every day.
Iran’s Revolutionary Guards naval commander said on Tuesday that Tehran could close the strait if it deems it necessary, and earlier on Saturday, Iran’s official IRNA news agency reported that a Guards helicopter boarded the Portuguese-flagged MSC ship. reported that it had entered Iranian territorial waters. Aries.
“Oil prices already include a risk premium, and the extent to which they expand further depends almost exclusively on developments near Iran in the Strait of Hormuz,” said Saxo Bank’s Ole Hansen.
