Oil prices slide more than 4% after Israel’s ‘limited’ attack on Iran seen as not disrupting supplies

“The recent Israel military action is unlikely to be seen by the market as leading to an escalation that impacts oil supply,” Citi analysts wrote in a note on Monday, cutting the bank’s Brent oil forecast by $4 to $70 per barrel over the next three months.

Oil markets are also staring at an oversupply. “With Israel deliberately, and perhaps with some American encouragement, avoiding the targeting of crude oil facilities, the oil market is back to looking at an oversupplied market,” said Andy Lipow, president at Lipow Oil Associates.

Oil production has been increasing not just in key countries such as U.S., Canada and Brazil, but even among smaller players such as Argentina and Senegal, he added.

“Oil prices will remain under pressure for the rest of this year, it may be difficult to see Brent crude oil prices reaching $80 in the foreseeable future,” Lipow told CNBC via email.

The risk premium has come off a few dollars a barrel as the more limited nature of the strikes, including avoiding oil infrastructure, have raised hopes for a de-escalatory pathway, said Saul Kavonic, an energy analyst at MST Marquee.

The spotlight now will be on whether Iran will counter the attack in the coming weeks, which would see risk premium rise again, Kavonic told CNBC, noting that the overall trend still remains one of escalation, with the scope for another round of attacks remaining high.

During a cabinet meeting on Sunday, Iranian President Masoud Pezeshkian emphasized Iran’s right to react to Israel’s attack, but maintained that they do not seek war.

“We do not seek war, but we will defend our country and the rights of our people. We will give a proportionate response to the aggression,” he said.

Market attention will turn to Hamas‑Israel and Israel‑Hezbollah ceasefire talks that resumed over the weekend, director of mining and energy commodities research at Commonwealth Bank of Australia, Vivek Dhar said.

“Despite Israel’s choice of a low‑aggression response to Iran, we have doubts that Israel and Iran’s proxies (i.e. Hamas and Hezbollah) are on track for an enduring ceasefire,” Dhar wrote in a note.