Israel's Wrath Fails To Sway Traders, Oil Continues Its Decline

Crude markets are mired in "risk-off" sentiment, says FGE: File Image/Pixabay

Crude trading continued its bearish trajectory on Monday, with traders seemingly taking faith in Israeli officials telling media that they were seeking retaliation against Hezbollah for rocket attacks but without sparking a broader conflict.

As a result, Brent settled down $1.35 at $79.78 per barrel, while West Texas Intermediate settled down $1.35 at $75.81 per barrel.

Trading was also said to be influenced by ongoing fears of weak demand in China, an issue that was a significant driver of crude trading in the previous few sessions.

Some pundits noted that oil's losses were somewhat unjustified: Bloomberg stated that "Technical indicators are showing the latest move lower has been too quick, with both Brent and WTI now oversold on the nine-day relative strength index."

With regard to Israel and its foes, Giovanni Staunovo, analyst at UBS, noted that "Despite renewed geopolitical tensions in the Middle East, the lack of any supply disruptions limits any positive price reaction."

Helima Croft, head of global commodity strategy at RBC Capital Markets, agreed, telling clients, "The oil market has largely faded the Middle East war story after the exchange of fire between Iran and Israel in April failed to trigger a wider conflict or put energy supplies materially at risk."

Meanwhile, analysts at FGE wrote that the oil markets overall are in a risk-off mood despite geopolitical tensions, impressive stock draws in the U.S., and other bullish signs.

They concluded, "Without further evidence yet of sustained stock draws, any upside for crude prices and structure may be limited in the immediate short-term."

Also on Monday, Goldman Sachs predicted that U.S. crude output would increase by 500,000 barrels per day (bpd) this year, slower compared to last year's increase of more than 1 million bpd.

However, it added that the U.S. will account for 60 percent of non-OPEC production growth, with Permian Basin operations expected to post an annual growth of 340,000 bpd, down from an early-year forecast of 520,000 bpd.