Oil prices fell on Monday as traders reassessed the risk of supply disruptions from the intensifying conflict between Israel and Iran. Despite initial gains, the market calmed since there was no immediate impact on oil production or critical export routes, leading to a cooling effect on prices after a significant rally last week.

Supply Stability Prevails

By 12:30 GMT, Brent crude was down 1.3% at $73.32 a barrel, while WTI crude dropped 1.2% to $70.46. This decline followed a notable spike of over $4 earlier in the day, which marked a strong rally last week.

The increase in oil prices reflected heightened geopolitical concerns as Israel targeted Iranian nuclear sites, and Iran retaliated with missile strikes on significant cities in Israel, including Tel Aviv.

Monitoring the Strait of Hormuz

Even amid these tensions, there have been no reports of damage affecting oil production or transit routes. Analysts have cautioned that the situation remains dynamic.

According to experts at ING, concerns linger about potential disruptions in the Strait of Hormuz, a crucial channel for global oil trade:

“Nearly a third of the world’s seaborne oil passes through the Strait. Should hostilities escalate and shipping is interrupted, oil prices could skyrocket.”

Until now, this risk has not come to fruition, leading to a price correction.

Iran’s Position in Global Oil Supply

Iran, despite facing U.S. sanctions, continues to rank as the third-largest OPEC producer, extracting 3.3 million barrels per day (bpd) and exporting approximately 1.7 million bpd. A disruption in this flow could negate the anticipated global oil surplus expected in 2025.

However, OPEC maintains 5 million bpd of spare capacity, which could provide a cushion if Iranian oil exports are limited. This capacity allows producers to step in swiftly to stabilize the market.

Future Outlook for Oil Prices

As the situation evolves, market watchers will focus on:

• Further developments in the Middle East

• Shipping safety in the Persian Gulf

• OPEC’s strategy if Iranian supply faces disruptions

Investors are advised to stay attentive and monitor diplomatic signs and military developments closely.