Oil falls after strongest weekly gain in over a year By Reuters

SINGAPORE (Reuters) – Oil prices pared gains in early trade on Monday after posting their biggest weekly gain in more than a year on Friday amid growing threats of a regional war in the Middle East.

Futures were down 43 cents, or 0.5 percent, at $77.62 a barrel by around 0015 GMT. U.S. West Texas Intermediate crude futures were down 35 cents, or 0.5 percent, at $74.03 a barrel.

Last week, the Brent contract gained more than 8% weekly and the most in a week since January 2023, while the WTI contract gained 9.1% weekly, the most since March 2023.

“Profit-taking may have been the cause of the pullback after last week’s price rally,” said independent market analyst Tina Teng.

“However, the oil market is likely to continue to face upward pressure due to fears of Israel’s retaliatory response to Iran. Geopolitical tensions are now playing a key role in shaping the market trend”.

Israel bombed Hezbollah targets in Lebanon and the Gaza Strip on Sunday ahead of the one-year anniversary of the October 7 Hamas attacks on Israel that sparked the war. His defense minister also said all options were open for retaliation against Iran.

This came after Iran launched a missile attack on Israel last week in response to Israel’s operations in Lebanon and Gaza.

Meanwhile, Israeli police said early Monday that Hezbollah rockets hit Israel’s third-largest city, Haifa.

Despite the rise in oil prices last week, the impact of this conflict on oil supply will be relatively small, ANZ Research said in a client note on Monday.

“We see a direct attack on Iran’s oil facilities as the least likely response among Israel’s options. Such a move would anger its international partners, while a disruption to Iran’s oil revenues would likely leave little to lose, potentially provoking a more ferocious response. “, he said.

“Furthermore, we have seen a diminished impact of geopolitical events on oil supply. This has led to a significantly lower geopolitical risk premium applied to oil markets in recent years, and OPEC’s 7 million bpd spare capacity provides an additional buffer. “

OPEC and its allies, including Russia and Kazakhstan, have millions of barrels of spare capacity as it has cut production in recent years to prop up prices amid weak global demand.

The producer group has enough spare oil capacity to offset the complete loss of Iranian supplies if Israel knocks out that country’s facilities, but would struggle if Iran retaliated by striking the facilities of its Gulf neighbors.

At its last meeting on October 2, OPEC and its allies, or OPEC+, kept their oil production policy unchanged, including a plan to start increasing production in December.