Oil Prices Decline Amid Middle East Tensions

By Laila Kearney

NEW YORK (Reuters) – Oil fell by nearly 2% on Monday as Israeli officials sought to prevent a full-scale Middle East war following a deadly rocket strike in the Israeli-occupied Golan Heights over the weekend.

Brent crude oil futures settled at $79.78 a barrel, down $1.35 (1.7%). U.S. crude futures ended lower by $1.35 (1.8%) at $75.81 a barrel.

Two Israeli officials told Reuters that Israel aims to retaliate against the Iranian-backed Lebanese group Hezbollah, which is blamed for the Saturday attack that killed 12 children and teenagers, while avoiding a larger conflict.

John Kilduff, partner at Again Capital in New York, commented, “It seems like the market has come around to the idea that—even as horrific as these episodes are—they are not likely to cause a region-wide conflict.”

On Sunday, Israel’s security cabinet authorized Prime Minister Benjamin Netanyahu‘s government to determine the manner and timing of a response to the attack.

Israel vowed to retaliate in Lebanon against Hezbollah, which denied responsibility for the attack. Israeli jets targeted sites in southern Lebanon on Sunday.

Despite investor concerns about potential crude output impacts from the Middle East tensions, output remains unaffected. UBS analyst Giovanni Staunovo stated, “Despite renewed geopolitical tensions in the Middle East, the lack of any supply disruptions limits any positive price reaction.”

Brent and U.S. crude prices fell 1.8% and 3.7% respectively last week due to weakened Chinese demand and hopes for a Gaza ceasefire.

Bob Yawger, director of energy futures at Mizuho in New York, noted, “The economic problems in China are also sucking the juice out of the oil market.”

Recent data indicated that China’s total fuel oil imports dropped 11% in the first half of 2024, raising concerns about the demand outlook from the world’s largest crude importer.

Prices also declined last week following news that the Dangote oil refinery in Nigeria is reselling cargoes of U.S. and Nigerian crude due to technical problems.

In other news, markets are monitoring the situation in Venezuela after its electoral authority announced that President Nicolas Maduro won a third term with 51% of the vote, despite multiple exit polls indicating an opposition victory. The U.S. previously stated it would adjust its sanctions policy towards Venezuela based on the election outcomes.