Oil prices settle lower as traders weigh risks of an Iranian attack on Israel

By Myra P. Saefong and William Watts

Natural-gas futures drop more than 6% on Thursday

Oil futures finished lower Thursday, consolidating the previous session's gain, as investors weighed the potential for Iranian attacks in retaliation for a strike on the country's embassy in Syria that was attributed to Israel.

Price moves

West Texas Intermediate crude CL00 for May delivery CL.1 CLK24 fell $1.19, or 1.4%, to settle at $85.02 a barrel on the New York Mercantile Exchange after tacking on nearly 1.2% Wednesday.June Brent crude BRN00 BRNM24, the global benchmark, lost 74 cents, or 0.8%, at $89.74 a barrel on ICE Futures Europe.May gasoline RBK24 shed 0.3% to $2.77 a gallon, while May heating oil HOK24 lost 1.8% to $2.66 a gallon.Natural gas for May delivery NGK24 settled at $1.76 per million British thermal units, down 6.4% after posting gains over the last four trading sessions.

Market drivers

Oil price benchmarks are "currently in a very supportive environment, as long as fears of a broader conflict in the Middle East remain unabated," Han Tan, chief market analyst at Exinity, told MarketWatch.

Prices have declined so far for the week, but trade higher for the month.

WTI and Brent rallied more than 1% Wednesday after news reports said Iranian strikes were imminent, stoking fears of a wider Middle East conflict that could begin to affect crude supplies from the oil-rich region. Despite U.S. sanctions, Iran is the third largest producer in the Organization of the Petroleum Exporting Countries.

"If Iran does attack Israel, there's bound to be a knee-jerk spike up for oil prices," said Tan.

The April 1 strike on Iran's embassy in Damascus killed several senior commanders in the Islamic Revolutionary Guard Corps.

German airline Lufthansa extended a suspension of flights to and from Tehran through Saturday, citing heightened security risks in the Middle East after U.S. officials said that an attack on Israeli assets by Iran or its proxies could be imminent.

Oil has rallied significantly through March and early April, with growing tension in the Middle East "obviously one reason for the boost," said Ewa Manthey and Warren Patterson, commodity strategists at ING, in a note.

"However, that increased geopolitical risk comes at a time when the oil market was already set to tighten," they wrote, noting the market had been pushed into the deficit as members of OPEC+, made up of OPEC and its Russia-led allies, extended voluntary cuts of 2.2 million barrels a day, or mbd, into the second quarter. ING sees the market in a deficit of around 1 mbd for the second quarter.

That should keep the market well supported in the coming months as the Northern Hemisphere enters summer driving season, they said.

"OPEC+ will be key to the outlook for the second half of the year. Additional voluntary cuts are set to expire towards the end of June. As a result, the market is set to be in a small surplus over the second half of 2024," they wrote. "However, the key upside risk is if OPEC+ decides on a further rollover, which would tighten the market still further."

OPEC, in its monthly report, left its forecast for 2024 and 2025 growth in oil demand unchanged at 2.2 mbd and 1.8 mbd, respectively. The group lowered its forecast for non-OPEC supply growth this year to 1 mbd from 1.1 mbd and reduced its estimate for 2025 by 1 mbd to 1.3 mbd.

The IEA's monthly oil report is due out Friday, along with key data releases out of major economies such as China, Japan, and Europe, said Tan, and those may sway oil prices ahead of the weekend.

"Over the near-term, oil bulls are set to remain tempted by the $100 [a barrel] handle, even as they parse through the present supply-demand equation," he said.

Natural-gas futures, meanwhile, lost more than 6% Thursday to trade nearly 30% lower year date.

The Energy Information Administration on Thursday reported a larger-than-expected weekly rise in U.S. supplies of the commodity and analysts have noted concerns surrounding a supply surplus.

-Myra P. Saefong -William Watts

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04-11-24 1519ET

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