Oil Nosedives In Advance Of Israel/Iran Ceasefire

Some analysts suggest that concerns have already reverted back to oversupply: File Image/Pixabay

Following Iran's tepid retaliation for U.S. attacks on its nuclear facilities (and before it and Israel agreed to an unconditional ceasefire), oil on Monday shed a massive 7 percent, or about $5 per barrel, with potentially more losses to come as tensions in the Middle East wind down.

Brent settled down $5.53, or 7.2 percent, at $71.48 per barrel, while West Texas Intermediate settled down $5.53, also 7.2 percent, to $68.51.

Traders were motivated by Iran not attempting to disrupt oil and gas traffic through the Strait of Hormuz – even though its parliament earlier voted to close the waterway.

The late-day announcement of a ceasefire negated most if not all of the speculations of what would happen next from the analytical community, including that of John Kilduff, founding partner at Again Capital, who remarked, "Oil flows, for now, aren't the primary target, and are likely not to be impacted. I think it's going to be military retaliation on US, bases and/or trying to hit more of the Israeli civilian targets."

John Canavan, lead analyst at Oxford Economics, noted that investors have become "jaded to geopolitical risks and greater uncertainty after the events throughout this year so far."

Following U.S. president Donald Trump's announcement of a ceasefire between the warring factions, Chris Weston, head of research at Pepperstone Group Ltd., said, "Traders are now firmly of the belief that the risk of a supply shock is now firmly in the rear-view mirror.

"The prospect of a prolonged conflict with U.S. involvement has been repriced, giving the green light to add risk, and pare back well-owned tail-risk hedges."

Bloomberg pointed out that Brent's prompt spread narrowed to 83 cents per barrel in backwardation: "While that's still a bullish pattern, with nearer-term prices above those further out, it's sharply down from last week's closing peak of $1.77 a barrel."

The news agency added that if the ceasefire takes effect and lasts, it may "pull traders' main focus back to the crude market's underlying fundamentals: there are widespread expectations that oil supplies will run ahead of demand in the second half of this year, spurring a build-up in global stockpiles."