U.S. oil falls below $83 as war fears ease after Israel refrains from immediate Iran counterattack
- Oil has sold off this week as traders unwind the geopolitical risk premium built into prices over the last two weeks on Israel-Iran tensions.
- Israel has refrained from immediately striking back against Iran in response to the unprecedented weekend air assault, reducing fears of a major war.
Crude oil futures were mixed Thursday after a selloff earlier in the week as traders discounted fears of a war between Israel and Iran that could disrupt crude supplies.
The West Texas Intermediate contract for May delivery added 4 cents, or 0.05%, to settle at $82.73 a barrel. June Brent futures lost 18 cents, or 0.21%, to settle at $87.11 a barrel. U.S. crude oil had gained nearly 1% to a session high of $83.47 before pulling back.
Oil sold off more than 3% Wednesday as Israel has refrained so far from striking back against Iran for the Islamic Republic's unprecedented weekend air assault, reducing fears of a major war in the Middle East.
"Now that we've had that big selloff people are creeping back in," said Phil Flynn, senior market analyst at the Price Futures Group. He said demand for oil looks solid as there's no indication of economic slowdown on the horizon.
U.S. crude oil and the global benchmark have fallen below the prices reached after Israel's airstrike against Iran's diplomatic compound in Damascus, Syria at the start of the month, the event that triggered the current round of hostilities.
Tamas Varga, analyst with oil broker PVM, said it appears international pressure on Israel will compel the country to respond in a "measured and moderate" way to Iran's weekend attack. Ukraine's drone attacks on Russian oil infrastructure have also receded, Varga said.
"Those with bullish propensity are sinking into apathy as the risk premium that is rooted from Russia and the Near East keeps eroding," the analyst said in a note Thursday.
The Biden administration has imposed new sanctions against Iran's missile and drone program, but the punitive measures have spared the Islamic Republic's oil exports for now. Treasury Secretary Janet Yellen said Tuesday that the U.S. could target Iranian oil in response to the attack against Israel.
In addition to the fading geopolitical risk premium, prices have also fallen this week on a 10 million barrel build in U.S. petroleum inventories last week, said Giovanni Staunovo, strategist with UBS.