Oil tumbled more than 5% in early Asian trading after Israeli strikes on Iran over the weekend avoided the OPEC member’s crude facilities.
Brent plunged to near US$73 ($96.59) a barrel and West Texas Intermediate sunk below US$69. Israeli fighter planes struck military targets across Iran on Saturday, delivering on a vow to retaliate for a missile barrage at the start of the month, though the attack was more restrained than many had expected.
The strike avoided oil, nuclear and civilian infrastructure sites, in line with a request from US President Joe Biden’s administration. Iranian state media said the country’s oil industry activities were working normally, and Tehran didn’t immediately vow to respond.
Oil has been buffeted by geopolitical risks in the Middle East, ample supply and lacklustre demand growth in China. Profits at the nation’s industrial firms over the weekend highlighted the weak outlook for the world’s biggest crude importer, despite recent government stimulus.
Israel’s “retaliation on Saturday was mostly viewed as underwhelming and proportionate”, said Harry Tchilinguirian, group head of research at Onyx Capital Group. “Poor macroeconomic realities centered around China will take over the narrative again to push the oil price lower.”
See also: OPEC’s dilemma: Another year of supply curbs or price slump
Brent’s three-month spread remains in a bullish, backwardated structure, but the gap has narrowed recently. The differential was 92 cents a barrel, compared with US$1.15 at the end of last week.
Market metrics, however, still show traders remain on edge. A gauge of implied volatility for Brent is near the highest in a year, and options are retaining a bullish hue. Calls — which buyers profit from when prices rise — remain at a premium over the opposite puts.
See also: ‘Drill, baby, drill’ is unlikely under Trump, Exxon says
There’s also higher-than-usual volumes of crude contracts changing hands, with over 148,000 lots of Brent traded by 8.10am in Singapore.
Infogaphics: Bloomberg
