Oil Prices Fall After Israel's Airstrikes Against Iran. Here's Why. -- Barrons.com

By Brian Swint

Tension in the Middle East heightened over the weekend after Israel's airstrikes against Iran, but the oil market shrugged it off. That suggests that traders don't see a serious risk that Iran's oil production will be impacted.

Israel's missile strike on Saturday morning had been anticipated for a while as retaliation for Iran's recent attacks. There were worries that oil production would be targeted, but only military sites were hit.

Afterward, the U.S. called on Iran not to strike back, according to The Wall Street Journal. U.S. officials said Israel's strikes appeared calibrated to avoid populated areas, and a spokesman for Israel said the country isn't interested in expanding the conflict.

Oil prices were falling sharply on Monday. West Texas Intermediate, the U.S. benchmark, declined 4.5% to $68.56 a barrel. Brent crude, the international standard, dropped 4.2% to $72.85 a barrel. Both contracts are down almost 10% over the past three months.

The tension in the Middle East has been elevated since the Oct. 7 Hamas attack on Israel last year. But that hasn't translated into a sustained boost for oil prices. Worries that China's economic slump will keep a lid on energy demand, as well as oil production staying strong, have prevented the kind of spike that was seen after Russia invaded Ukraine in 2022.

That year was a ringer for oil company profits. Big oil stocks have nevertheless been mixed in 2024. Exxon Mobil, the biggest U.S. producer, is up almost 20% since Jan. 1 coming into Monday's season, close to the 22% average for the S&P 500. Chevron has gained 1% this year. Occidental Petroleum, the production-focused company that Warren Buffett's Berkshire Hathaway owns a large stake in, has lost 14%.

However, it's still too early to rule out an escalation that does threaten global oil supply -- Iran is a major producer, and if it gets cut off it would have repercussions. Traders may be expressing relief now, but the situation is still far from resolved.

Write to Brian Swint at brian.swint@barrons.com

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October 28, 2024 05:06 ET (09:06 GMT)

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