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Oil prices fall as Iran-Israel fears cool, economic jitters persist

Published 22/04/2024, 11:48 am
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Investing.com-- Oil prices fell Monday, extending losses from the prior week amid growing hopes that the Iran-Israel conflict will not escalate further, limiting the potential disruption of supplies from the key oil-rich region. 

At 08:20 ET (12:20 GMT), Brent oil futures fell 1% to $86.41 a barrel, while West Texas Intermediate crude futures dropped 1% to $81.40.

Both contracts fell more than 3% each last week as fears of a demand slowdown, amid weak global economic conditions, somewhat offset escalating tensions in the Middle East. 

Iran-Israel escalation bets dwindle after Friday strike 

Bets that a conflict between Iran and Israel will grow have somewhat dwindled in recent sessions, even as Israel was linked to missile strikes against Iran on Friday.

Iran largely downplayed the impact of the Israeli strikes, and flagged no immediate plans for retaliation. 

This lack of immediate retaliation was a key driver of bets that the conflict will not worsen. While oil prices had surged to nearly $91 a barrel in the immediate aftermath of the Israeli strikes, they swiftly curbed most of their gains later in Friday’s session. 

"The market is obviously of the view that spare OPEC production capacity will come into play in the event of any supply shocks, or that ongoing tension is unlikely to lead to significant supply losses," said analysts at ING, in a note..

But continued tensions in the Middle East, especially as a Israel-Hamas truce appeared unlikely, still kept some concerns over supply disruptions in play. 

Media reports on Monday indicated that rockets were fired at a U.S.-led coalition base in Syria, while Israeli strikes in Gaza continued. 

Middle East tensions have been the biggest driver of oil price gains in recent months. 

Rate fears, demand concerns weigh on oil prices

Oil prices also faced pressure from a recent surge in the dollar, as traders swiftly scaled back bets on early interest rate cuts by the Federal Reserve. This notion was furthered chiefly by stronger-than-expected U.S. inflation readings for March.

Markets also feared that higher-for-longer U.S. interest rates and sticky inflation will damped economic growth this year, in turn chipping away at global oil demand.

Recent data showing a bigger-than-expected build in U.S. inventories furthered these concerns, while also raising questions over just how tight oil markets will be in the coming months. 

U.S. oil production has remained at record highs in recent months, somewhat offsetting expectations of tighter supplies on production cuts from other producers, specifically the Organization of Petroleum Exporting Countries.

The latest data from Baker Hughes shows that U.S. drillers increased their oil rig count by five over the course of last week to 511.

"This is the highest number of active oil rigs since September last year when we saw WTI trading above $90/bbl several times," added ING.

(Amber Warrick contributed to this article.)

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