Oil prices retreated slightly in early Asian trading hours on Tuesday following a surge to over a month-high on Monday amidst escalating tensions in the Middle East.
Fears of a region-wide war in the Middle East intensified after Iran-backed Hezbollah launched rockets at Israel's third-largest city, Haifa, prompting concerns of a broader conflict. This comes amid ongoing hostilities between Israel and Lebanon, following last year's Hamas attack on Israel that sparked a conflict in Gaza.
Oil futures saw a slight decline, with Brent crude dropping 0.3% to $80.70 per barrel and U.S. West Texas Intermediate falling 0.3% to $76.94 a barrel. However, both contracts had surged over 3% on Monday to reach their highest levels since late August.
The recent rally was triggered by Iran's missile strike on Israel, raising concerns about potential disruptions in oil supply. Analysts have speculated on possible outcomes, with some suggesting that an attack on Iranian oil facilities may not materialize and warning of downward pressure on oil prices if Israel shifts its focus to other targets.
Despite the tensions, ANZ Bank analysts pointed out that OPEC has significant spare supply capacity of 7 million barrels per day, which could help mitigate any potential supply disruptions.
In addition to the Middle East concerns, Hurricane Milton has intensified into a Category 5 storm, posing a threat to oil and gas operations in the U.S. Gulf of Mexico.
Looking ahead, U.S. crude oil inventories are expected to rise by 1.9 million barrels in the week ending Oct. 4, with data releases from the American Petroleum Institute and the Energy Information Administration scheduled for later this week.
In conclusion, the current geopolitical tensions in the Middle East and the impact of extreme weather events on oil production highlight the volatility and uncertainty in the oil market. Investors should closely monitor developments in the region and weather patterns to assess potential risks to oil prices and their investment portfolios.