Oil tanks nearly 6% as Iranian retaliation against US spares energy supply

Yahoo

a day ago

Oil futures slid nearly 6% on Monday as Iran appeared to spare the energy market while the country launched missiles targeted at a US air base in Qatar in retaliation for US bombings on Iranian nuclear sites.
Brent crude (BZ=F), the international benchmark, dropped to $72 per barrel. West Texas Intermediate (CL=F) also fell almost 6% to trade below $70 per barrel.
The declines came after Iranian state media said it launched missile attacks against a US air base in Qatar, matching the number of bombs dropped by the US over the weekend, in a move the Associated Press said signaled "a likely desire to deescalate."
Prior to the retaliatory move, Wall Street weighed various scenarios after President Trump announced on Saturday that the US struck three Iranian nuclear facilities, including the threat of Iran closing the Strait of Hormuz, a critical chokepoint for oil flows.
On Monday morning, President Trump posted on social media: "To The Department of Energy: DRILL, BABY, DRILL!!! And I mean NOW!!!"
"The main reason for this stability is that energy infrastructure has largely been spared from direct attacks, with number of oil tankers transiting through the Strait of Hormuz remaining steady," JPMorgan's Natasha Kaneva and her team wrote on Monday morning.
On Sunday, futures spiked after Iran's parliament voted to close the Strait of Hormuz, but the final decision rests with Iran's Supreme National Security Council and Supreme Leader Ayatollah Ali Khamenei.
The oil market is now factoring in "a one-in-five chance of a material disruption in Gulf energy production flows, with potential for crude prices to reach the $120-130 range," Kaneva wrote.
"Yet, beyond the short-term spike induced by geopolitics, our base case for oil remains anchored by our supply-demand balance, which shows that the world has enough oil," she added. She also noted that "with fewer reliable partners in the Middle East and limited regional appetite for a broader conflict, Iran faces a constrained set of options and a heightened set of risks as it deliberates its course of action."
Other possible retaliatory moves from Iran could include supporting Yemen's Houthi rebels in renewed attacks on commercial shipping, or going after energy infrastructure in neighboring countries.
If crude climbs into the $120 to $130 range, analysts predict gasoline and diesel prices could rise by as much as $1.25 per gallon.
"Consumers would be looking at a national average gasoline price of around $4.50 per gallon — closer to $6.00 if you're in California," Lipow Oil Associates president Andy Lipow said in a Sunday note.
The key issue isn't just the potential for supply disruption, but how long it lasts, Rebecca Babin, senior energy trader at CIBC Private Wealth, told Yahoo Finance on Sunday.
"If infrastructure is hit but can be quickly restored, crude may struggle to hold gains," she said. "But if Iran's response causes lasting damage or introduces long-term supply risk, we're likely to see a stronger and more sustained move higher."
Last week, JPMorgan analysts noted that since 1967 — aside from the Yom Kippur War in 1973 — none of the 11 major military conflicts involving Israel have had a lasting impact on oil prices.
In contrast, events directly involving major regional oil producers, such as the first Gulf War in 1990, the Iraq War in 2003 and the imposition of sanctions on Iran in 2018, have all led to meaningful and sustained moves in oil markets.
"During these episodes, we estimate that oil traded at a $7–$14 per barrel premium to its fair value for an extended period," JPMorgan's Kaneva wrote.
They added that the most significant and lasting price impacts historically come from "regime changes" in oil-producing countries, whether that be through leadership transitions, coups, revolutions, or major political shifts.
"While demand conditions and OPEC's spare capacity shape the broader market response, these events typically drive substantial oil price spikes, averaging a 76% increase from onset to peak," Kaneva wrote.
The Organization of the Petroleum Exporting Countries and its allies (OPEC+) had raised output in the months leading up to Israel's strike on Iran on June 13.
Ines Ferre is a Senior Business Reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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