Oil Prices Slump Despite War Drums

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Crude oil prices recovered some lost ground on Tuesday following a session bruised by an easing of geopolitical risks, and few analysts are expecting a return to $100 crude oil anytime soon.

The price for Brent crude oil, the global benchmark, was posting modest gains early in the Tuesday session to linger in the range of $71 per barrel. Prices had collapsed 6% on Monday after Israeli airstrikes on Iran avoided any major oil or nuclear installations. Some support Tuesday also came from the U.S. decision to buy 3 million barrels of oil for its Strategic Petroleum Reserve.

Conflict in the Middle East erupted last year when militants from Hamas stormed the Israeli border, leaving 1,200 people dead, putting an initial premium on the price of oil. Israel has since responded by razing much of the Gaza Strip, taking out the leader of the Iranian-backed Hezbollah movement in Lebanon and striking Iranian military targets during the weekend.

Sabrina Singh, a deputy spokesperson for the U.S. Defense Department, said the United States remained steadfast in its support for Israel, advising Iran to stand down.

"We don't think that Iran should or needs to respond," she said.

Elsewhere, the United Kingdom Maritime Trade Operations, which monitors maritime risks, reported that a merchant vessel off the coast of Yemen was in the close proximity of three explosions, though the vessel and its crew were safe.

Houthi rebels in Yemen, backed by Iran, have threatened Red Sea shipping lanes since the conflict began. Those waters handle about 8% of the global waterborne crude oil. It's close to the Strait of Hormuz, which handles about 20% of waterborne crude oil. Trade patterns, however, have largely adjusted to regional threats.

Most major reporting agencies have cut their forecast for crude oil prices given that no energy installations have been deliberately targeted during more than a year of conflict. Speaking to the Dubai-based Gulf Intelligence consulting group, Imad al-Khayyat, a research lead at the London Stock Exchange Group and a former economic analyst at the Organization of the Petroleum Exporting Countries, suggested tensions were high, but controlled.

To him, the tit-for-tat on military action is over and there's an unofficial truce between Iran and Israel.

"Consequently, oil prices will have to move without the influence of geopolitical tensions," he said Tuesday. "Therefore, exceptional upward spikes in prices are less likely this week."

Traders may be standing on the sidelines, meanwhile, with a week to go before U.S. presidential elections. Former President Donald Trump is decidedly pro-drilling, while Vice President Kamala Harris has a greener agenda.

Nevertheless, market watchers seem to believe oil prices are unlikely to increase much, with Saxo Bank in Denmark saying in a quarterly report from earlier this month that markets may be range-bound.

"Having spent a considerable time this year trading in the USD 80's we believe these considerations point to a Brent crude price stuck in 70's for the foreseeable future, with a geopolitical event or a recovering China the possible drivers of any upside surprise," analysts wrote.

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