Due to the fact that Iran's energy facilities were not damaged in the Israeli attack last weekend, USA crude oil experienced a significant sell-off on Monday, dropping by 6% at one point, marking the worst day in over two years, with Brent crude oil falling by over 5%.

The latest retaliation by Israel against Iran and the latter's downplaying of losses have sparked speculation in the market that both sides are currently trying to avoid escalation of conflict. As a result, the geopolitical risk premium in the oil market has sharply decreased, returning to levels before the latest escalation in the Middle East situation.

According to the Tasnim News Agency in Iran, the state-owned Islamic Republic news agency reported that this attack resulted in four soldiers dead, with the damage being described as "limited." The attack avoided the locations of oil, nuclear energy, and civilian infrastructure. Shana, an Iranian oil news network, stated that Iran's oil industry operations are "normal" and have not been interrupted.

President Andy Lipow of Lipow Oil Associates said, "With Israel deliberately avoiding targeting Iranian oil facilities, perhaps under some deterrence from the USA, the oil market has returned to a state of oversupply."

Energy analyst Saul Kavonic from MST Marquee stated that the risk premium has decreased by several dollars per barrel due to the limited nature of the Israeli strikes, including avoiding oil infrastructure, giving people hope for a de-escalation in geopolitical tensions.

Kavonic told CNBC that the focus now will be on whether Iran will retaliate in the coming weeks, which could lead to another increase in the risk premium. He pointed out that the overall trend of the conflict is still escalating, with another round of attacks likely to occur.

During a cabinet meeting last Sunday, Iranian President Masoud Pezeshkian emphasized Iran's right to respond to attacks by Israel. "We are not seeking war, but we will defend our country and the rights of our people. We will respond proportionately to any aggression," he said.

Iranian Foreign Ministry spokesperson Bagai said on Monday that Tehran will "use all available tools" to respond to the weekend attacks by Israel on military targets inside Iran.

Vivek Dhar, Director of Mining and Energy Commodities Research at the Commonwealth Bank of Australia, believes that market attention will shift to the ceasefire negotiations between Hamas-Israel and Israel-Hezbollah that resumed last weekend.

"Although Israel chose a low-aggression response to Iran, we suspect whether Israeli and Iranian proxies (i.e. Hamas and Hezbollah) are on the track for a lasting ceasefire," wrote Dhar in a report.

While the selling in the oil market eased as Israel did not strike Iranian oil facilities, Rapidan Energy founder Bob McNally said the market has not yet recovered.

"Direct conflicts between Israel and Iran may continue. Israel has shown that it is able and willing to target Iran's energy and nuclear targets in future strikes," said McNally, expecting oil prices to remain in a range.

However, from a technical aspectsperspective, oil prices are approaching the edge of a cliff. Fxstreet analyst Alexander Kuptsikevich stated that recent price declines have tilted the balance in favor of the bears. Bullish attempts to keep prices above the 50-month moving average line (roughly coinciding with the 200-week moving average line) since the beginning of the year have been a key support line, broken in August.

As a new week begins, crude oil prices are testing levels from the past two years.ResistanceA close below the September low of $65 in October would be a major put signal, potentially accelerating the decline in oil prices. There is a risk of a collapse in oil prices, with the next downside target being the $50 region, which is an important psychological level. Historical data from the oil price collapses in 2008-2009, 2014-2015, and 2020 suggest that the ultimate "bottom" could be in the $30-35 range.