Oil drops after strongest weekly gain in over a year

by Jonathan Adams
Oil hits

Brent crude futures dropped 31 cents, or 0.4%, to $77.74 per barrel and U.S. WTI crude futures slid 20 cents, or 0.27%, to $74.18 per barrel

Oil prices dropped on Monday after posting their sharpest weekly gain in over a year last week as oversupply concerns countered the worries of a wider Middle East war disrupting exports in the key producing region.

Brent crude futures dropped 31 cents, or 0.4%, to $77.74 per barrel by 0435 GMT. U.S. WTI crude futures slid 20 cents, or 0.27%, to $74.18 per barrel.

Brent increased by more than 8% last week, the biggest weekly gain since January 2023, while the WTI contract added 9.1% week-on-week, the most since March 2023, on expectations that Israel could strike Iranian oil infrastructure in response to an Iranian attack on Israel on October 1.

However, as the Israeli response is still developing, some investors likely sold futures to lock in their gains from the previous week’s rise.

Technical profit-taking seems to be the most logical explanation, according to Priyanka Sachdeva, senior market analyst at Phillip Nova, on Monday’s softening in oil prices.

Still, oil markets are bound to experience tailwinds amid fears of Israel’s retaliation on Iran, as the potential mass-scale escalation of conflict in the Middle East has countered mounting demand-side pressures, Sachdeva added.

However, ANZ Research cautioned on Monday that despite the rally in oil prices last week, the impact of the conflict on oil supply will be relatively small.

We see a direct attack on Iran’s oil facilities as the least likely response among Israel’s options, it said.

Moreover, we have seen a diminished impact of geopolitical events on oil supply. This has led to a significantly smaller geopolitical risk premium being applied to oil markets in recent years, and OPEC’s 7 million bpd of spare capacity provides a further buffer, it added.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia and Kazakhstan, OPEC+, has millions of barrels of spare capacity since it has been cutting production in recent years to support prices amid weak global demand.

The producer grouping has enough spare oil capacity to compensate for a full loss of Iranian supply if Israel attacks Iran’s facilities, but it would struggle if Iran retaliates by hitting the installations of its Gulf neighbours, as per analysts.

At its last meeting on October 2, OPEC+ kept its oil output policy unchanged including a plan to start raising production from December.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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