Oil Falls as Traders Eye Israeli Response to Iran Attack

(Bloomberg) — Oil prices started the week lower as the market waited to see whether Israel would retaliate against Tehran for a missile attack last week, with President Joe Biden advising against an attack on Iran’s oil fields.

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Brent slipped below $78 a barrel after posting its biggest rise since January 2023 last week, while West Texas Intermediate was around $74. Biden said Friday he didn’t know when an Israeli response would come, but “I would think about alternatives other than attacks on oil fields.”

Iran’s attack on Israel has raised fears of an all-out war in the Middle East and led to violent action in the options market. However, questions remain about the demand outlook – particularly from No. 1 importer China – and oversupply in the market.

The Middle East remains tense as Israel redeploys troops to the northern Gaza Strip over the weekend and continues to carry out airstrikes and limited ground exercises in Lebanon. Iranian oil production has returned to almost full capacity and could be vulnerable if tensions escalate.

The market is “in a waiting game for now” as traders wait for clarity on developments in the Middle East, said Yeap Jun Rong, market strategist at IG Asia Pte in Singapore. Any hit to Iran’s energy infrastructure “could cause Brent crude oil prices to rise above $80.”

Oil options markets continue to lean toward bullish call options – which benefit buyers if futures advance. A measure of implied volatility for Brent was near its highest level in almost a year, as asset managers added further net-long positions on the global benchmark.

Goldman Sachs Group Inc. predicted that Brent could rise to $90 if Iran’s oil supply is disrupted, according to a note from analysts including Daan Struyven. However, JPMorgan Chase & Co. said an attack on Tehran’s energy assets was not the preferred course of action.

Saudi Arabia, meanwhile, raised its key oil price for buyers in Asia more than expected, while cutting prices of all grades exported to the United States and Europe.

China’s top economic planner will hold a news conference on Tuesday to discuss a package of measures to boost economic growth, according to a government announcement on Sunday. Expectations are growing among analysts that Beijing will expand public spending as part of its economic stimulus package.

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