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Oil prices dropped significantly on Monday, experiencing their largest decline in three years. Traders speculated that Iran’s strike on a US base in Qatar was a “de-escalatory” act, potentially preventing a more severe attack on oil infrastructure.
Brent crude, which serves as the global benchmark, closed down 7.2 percent at $71.48 per barrel, marking its steepest decrease since August 2022.
This drop was a notable shift from earlier in the day when Brent prices had risen above $80, responding to US airstrikes on Iranian nuclear sites over the weekend.
The price fell further to $69.23 when trading reopened after Qatar announced it had thwarted a missile attack from Iran that aimed at the Al Udeid air base, home to 10,000 US troops.
Brent’s value dipped again after President Donald Trump stated that Iran had given “early notice [of the attack], which allowed for no casualties or injuries.”
Helima Croft, a former CIA analyst now with RBC Capital Markets, remarked that the market is now showing clear signs of a significant de-escalation between the US and Iran.
Croft noted that traders are anticipating a scenario similar to January 2020, when Iran retaliated against the US for the killing of a top military general by attacking Iraqi bases housing American forces, having warned Trump of the impending strike through indirect communication.
“Iran’s choice to retaliate with a clearly communicated missile assault on US bases suggests they are unlikely to use oil as a weapon,” said Michael Alfaro, chief investment officer at Gallo Partners, an energy-focused hedge fund.
On Monday, Brent prices erased all gains made since June 12, just before Israel initiated an unexpected attack on Iran’s nuclear sites, military personnel, and scientists.
Some market analysts had expressed concerns that Iran might target key energy infrastructure in the Middle East or attempt to close the Strait of Hormuz, a critical transit route for about 25% of the world’s oil shipment. However, the decrease in oil prices indicates that traders are now reducing their expectations of such incidents.
“Oil markets have come to terms with the reality that Iran is not interested in a large-scale conflict. Similar to 2020, Tehran has opted for a minimal response,” stated Bill Farren-Price from the Oxford Institute for Energy Studies.
Analysts also indicated that the crude oil market is being buoyed by a strong supply, particularly since the OPEC+ alliance has been consistently increasing its production targets in recent months.
“Additionally, the absence of a war premium can be attributed to the influx of oil entering the market coinciding with geopolitical tensions,” noted Robert Yawger, a commodities analyst at Mizuho Securities, an investment bank.
