Oil futures dropped Sunday night as markets saw a calm opening following Israel’s launch of a ground offensive in Gaza that drew implied threats from Iran amid market fears of a wider conflict that could disrupt global crude supplies.
Oil declined as Israel “seems to be approaching the situation with caution, which has brought a sense of relief that the worst-case scenarios may not materialize,” said Stephen Innes, managing partner at SPI Asset Management, in a note.
Innes, however, said investors should remember “this is likely to be a long, drawn-out affair with many false dawns.”
West Texas Intermediate crude for December delivery CL00, -1.48% CL.1, -1.48% CLZ23, -1.48% fell 93 cents, or 1%, to $ 84.61 a barrel on the New York Mercantile Exchange on Sunday night. December Brent crude BRNZ23, -1.30%, the global benchmark, was off $ 1, or 1.1%, at $ 89.48 a barrel on ICE Futures Europe, dipping back below the $ 90-a-barrel threshold.
Oil futures jumped nearly 3% on Friday, but suffered weekly declines, eroding the modest risk premium priced into the market.
Read: 4 reasons why oil prices have only seen a modest Middle East risk premium
Israeli solders had moved at least two miles deep into the Gaza Strip as of Sunday, the Wall Street Journal reported, after beginning a delayed ground incursion into the enclave aimed at routing Hamas following its Oct, 7 attack on southern Israel that left more than 1,400 dead and saw more than 200 Israelis taken hostage.
A sustained bombardment of the densely populated Gaza Strip by Israel has resulted in more than 8,000 casualties, according to Palestinian authorities. Israel has been under pressure by the U.S. and others to minimize civilian casualties.
U.S. stock-index futures ticked higher, with S&P 500 futures ES00, +0.33% up 0.3%, while futures on the Dow Jones Industrial Average YM00, +0.19% added 68 points, or 0.2%.
The biggest worry among investors is a conflict that sees Iran become more directly involved. Iranian crude exports have rebounded from lows seen after the Trump administration withdrew the U.S. from a nuclear accord with Tehran and reimposed sanctions in 2018.
A renewed crackdown on Iran could take up to 1 million barrels a day of crude off the market, while a spiraling conflict could see Tehran threaten transportation chokepoints, particularly the Strait of Hormuz, or otherwise attack infrastructure in the region, while driving up a fear premium.
Iranian President Ibrahim Raisi, in a post on X written in English, said Saturday that Israel had “crossed the red lines, which may force everyone to take action.”
U.S. warplanes on Friday struck two locations in eastern Syria, which the Pentagon said were linked to Iran’s Revolutionary Guard Corps, following a string of attacks on U.S. air bases in the region that started last week.
U.S. stocks are poised to book another round of monthly losses as October draws to an end, though pressure has been attributed largely to a surge in Treasury yields. The S&P 500 SPX last week joined the Nasdaq Composite COMP in correction territory, while the Dow DJIA is down more than 2% year to date.
The rise in yields, which move opposite price, has come as U.S. government debt has failed to attract its usual haven-related buying amid rising Mideast tensions.
See: Israel-Hamas war sees investors shun most traditional havens, except for these two