Last weekend, a soccer field on the Golan Heights was hit by a rocket attack, causing casualties and causing strong anger in Israel; The market is concerned that the incident will become a catalyst for a comprehensive regional war, but the oil price continued to fall on Monday despite concerns; Israeli officials revealed on Monday that they do not expect to escalate the conflict and will take restrained retaliatory action.
On the weekend, a soccer field on the Golan Heights, which is occupied by Israel, was hit by a rocket attack, and the market fears it will become a fuse for a large-scale exchange of fire between Israel and Hezbollah.
However, despite the tense situation, the oil price is still unaffected. On Monday, WTI crude oil futures prices fell by 1.75%, and Brent futures prices fell by 1.66%.
Helima Croft, Global Head of Commodity Strategy at the Royal Bank of Canada Capital Markets, pointed out in a report that in April, Iran's embassy in Syria was bombed by Israel, but the incident did not cause a greater conflict or pose a substantial threat to energy supplies. Since then, the oil market has largely shaken off the influence of the Middle East conflict.
But Croft also warned that as Hezbollah is very sensitive, direct confrontation between Israel and Hezbollah could become the catalyst for OPEC member Iran to become involved in the war. However, Israel is expected to maintain restraint and take moderate retaliatory measures, with no new frontline expected to be opened.
On Monday, two Israeli officials also confirmed this view, saying that Israel hoped to strike at Hezbollah, but did not want to cause a larger conflict. Israel only blamed the attack on Hezbollah last Saturday.
John Kilduff, a partner at New York's Again Capital, said the market seems to have accepted the view that although these geopolitical events are very scary, they are unlikely to lead to regional conflict.
Giovanni Staunovo, an analyst at UBS Group, also emphasized that although the geopolitical tension in the Middle East has escalated again, prices will not show any positive response because supplies have not been interrupted.
Supply and demand impact
Currently, a major driving factor for the decline in oil prices is weak global demand, especially the decline in demand from China. Bob Yawger, head of energy futures at Mizuho Securities in New York, pointed out that the moderate trend of China's oil imports is weakening the upward momentum of the oil market.
In addition, there were reports that a major Dangote refinery in Nigeria experienced a technical failure and is now reselling its holdings of U.S. and Nigerian crude oil, further depressing crude oil prices.
Another risk is the recent Venezuelan elections. The electoral authorities in the country claimed that, although multiple exit polls showed that the opposition would win, President Maduro is expected to win a third term with 51% of the vote.
Maduro's re-election means that U.S. oil sanctions will continue to restrict the country's energy production. The United States has previously stated that it will adjust its sanctions policy toward Venezuela based on the election results.