US oil falls more than 4% as Israel is not expected to target Iran's oil industry

U.S. crude oil futures fell more than 4% on Tuesday after Israel told the U.S. it did not plan to attack Iran's oil facilities, easing fears of a major supply disruption in the Middle East.

Israel plans to limit its retaliatory strikes on Iran to military targets and does not plan to target the Islamic Republic's oil industry or its nuclear facilities, three senior Biden administration officials told NBC News.

Oil prices rose earlier this month after Iran launched a ballistic missile attack on Israel, raising fears that Israel's response could lead to a new cycle of escalation that disrupts oil supplies in the region.

Geopolitical risk has completely evaporated from the market, Helima Croft, head of global commodities strategy at RBC Capital Markets, told CNBC's “The Exchange.”

Here are Tuesday's closing energy prices:

West Texas Intermediate November contract: $70.58 per barrel, down $3.25 or 4.4%. Year to date, US oil is down more than 1%.

Brent December contract: US$74.25 per barrel, down US$3.21, or 4.14%. Year-to-date, the global benchmark index is down more than 3%.

Gasoline RBOB November Contract: $2.0377 per gallon, down 3.36%. Year to date, gasoline fell by around 3%.

natural gas November contract: US$2,498 per thousand cubic feet, up 0.16%. Gas prices are a little low so far this year.

Oil prices fell significantly from the highs reached by the attack on Iran on October 1st. So far, Israel has refrained from reacting and traders have shifted focus to market fundamentals as the oil surplus is expected to increase next year.

But Croft warned of an upward spiral that could eventually lead to oil disruption. If Israel launches a major attack on military targets in Iran that results in casualties, the Islamic Republic's response could escalate Israel.

“The White House was sufficiently concerned about Iranian retaliation … that it actually worked hard to take Israel off its list of potential targets,” Croft said. He said Israel could reserve the oil card until it sees how Iran responds to its attacks.

The outlook for global demand is weak

OPEC Lowered Its Oil Forecast for 2024 This week is the third month in a row. And the International Energy Agency expects demand to fall below 900,000 barrels per day in 2024 and increase by 1 million barrels per day in 2025, a significant slowdown compared to the 2 million barrels per day increase in the post-pandemic period. .

Oil demand in China is particularly weak, with consumption falling by 500,000 bpd in August, the fourth consecutive monthly drop, according to an IEA report published on Tuesday. Meanwhile, crude oil production in the Americas will increase by 1.5 million bpd this year and next, led by the United States, the IEA said.

The IEA said its members are ready to act if supplies are disrupted in the Middle East.

“For now, supply continues to flow and, in the absence of a major disruption, the market faces a significant surplus in the new year,” the IEA said in its monthly report.

OPEC has millions of barrels per day of spare capacity that it could exceed if supply disruptions occur. But Saudi Arabia may not act immediately, Croft said.

He said the Saudis would be very cautious about bringing back the barrels if there were any tensions. “They will want to see a physical interruption in supply before they really get ahead of it.”