Oil prices were falling early Tuesday, retreating from initial gains following an attack by Hamas on Israel. The global standard Brent crude dropped 0.7% to $87.51 a barrel, while West Texas Intermediate decreased by 0.8% to $85.70 a barrel.
Limited Rise in Crude Prices Amid Geopolitical Concerns
On Monday, crude prices rose around 4% due to concerns over further conflict in the Middle East and potential reactions from Saudi Arabia and Iran. However, these gains were relatively limited, as prices did not reach the $90-a-barrel levels they reached a week ago.
Rebecca Babin, a senior energy trader at CIBC Private Wealth US, commented on the situation, stating, “Recently, crude has been prone to overreacting to geopolitical events and has failed to sustain initial gains as global energy markets have proven resilient and well supplied.”
Immediate Supply Concerns and Potential Impact on Diplomacy
The immediate concerns regarding oil supply revolve around whether the conflict will impact a potential deal that would see Saudi Arabia boosting production as part of diplomacy with Israel and the U.S., as well as the possibility of tightened sanctions on Iran.
While the short-term impact on crude supply is expected to be minimal, market participants recognize the increased potential for supply disruptions. Babin added, “Nonetheless, market participants recognize that the potential for supply disruptions has increased, even if in the short term supply is secure.”