4/15/2024

Oil prices fall despite Iran attack

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Key points:

  • Oil prices fell on the morning of April 15 due to traders reducing risk premiums.
  • Iran’s attack on Israel raised concerns among traders as Iran is OPEC’s largest oil producer.
  • De-escalation of tensions could lead to a sharp decline in prices to $70 per barrel or below.

Oil prices showed a decline on the morning of April 15 due to a reduction in risk premiums by traders. In the context of the dynamics, the Iranian attack on Israel, which occurred at the end of the week, according to the Israeli government, did not lead to significant destruction.

June Brent crude futures fell 50 cents to $89.95 a barrel, a 0.5% drop. WTI crude futures for May delivery fell 52 cents, or 0.6%, to $85.14 a barrel.

Iranian attack on Israel

More than three hundred missiles and unmanned vehicles were used during the Iranian attack. The event raised alarms about a possible expansion of the regional conflict affecting oil transportation through the Middle East. However, the strike, which Iran called retaliation for the attack on its consulate in Damascus, caused only minor damage: Israel’s Iron Dome missile defense system was able to shoot down the missiles. Israel, which is at war with Iranian-backed Hamas militants in the Gaza Strip, would not confirm or deny the attack on the consulate.

Given that Iran currently produces more than three million barrels of crude oil per day and is the largest producer in OPEC, supply risks include stricter enforcement of oil sanctions and possible Israeli counterattacks on Iran’s energy resources.

Despite tensions, oil prices could fall further

Analysts had forecast short-term price increases, but the larger, longer-term impact on costs would depend on the scale of the escalation – for example, significant supply disruptions such as shipping restrictions in the Strait of Hormuz.

Moreover, at the moment the conflict between Israel and Hamas has not had a significant impact on oil supplies.

Further developments, including Israel’s response, will determine whether the escalation ends or continues.

At present, the conflict may be limited to the confrontation between Israel, Iran and its allies, with the possible involvement of the United States. Only in case of extreme escalation could it have a significant impact on oil markets.

Citi Research analysts believe that prolonged tensions in the second quarter of 2024 led to a decline in oil prices to $85-90 per barrel. If the balance between supply and demand remains in the market in the first quarter, any de-escalation could lead to a sharp drop in prices to $70 per barrel or even lower.

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