Prices are falling as the recent rally takes a breather

Crude oil futures fell more than 4% on Tuesday as the rally sparked by heightened geopolitical risk paused as the market waited for Israel to strike back against Iran.

“Oil prices can only continue to rise for so long, based solely on perceptions rather than actual supply disruptions,” Tamas Varga, an analyst at oil broker PVM, said in a note Tuesday.

Oil prices have risen more than 7% through Tuesday’s close since Iran fired around 180 ballistic missiles into Israel last week, raising fears that Israel could target Iran’s crude oil industry in retaliation.

However, President Joe Biden has publicly discouraged Israel from attacking Iran’s oil infrastructure. Israel will likely strike military and intelligence sites in Iran first, officials told The New York Times.

The Jerusalem Post also reported that Israel is expected to focus on military and intelligence facilities.

Israel’s Defense Minister Yoav Gallant will meet with U.S. Defense Secretary Lloyd Austin at the Pentagon on Wednesday “to further discuss ongoing security developments in the Middle East,” press secretary Maj. Gen. Pat Ryder told reporters in a briefing on Monday.

Here are Tuesday’s closing energy prices:

• West Texas Middle School November contract: $73.57 a barrel, down $3.57 or 4.63%. Year-to-date, U.S. crude oil is up more than 2%.
• Brent December contract: $77.18 a barrel, down $3.75 or 4.63%. The global benchmark has hardly changed over the course of the year so far.
• RBOB gasoline November contract: $2.0681 per gallon, down 3.98%. Year to date, the price of gasoline has fallen by more than 1%.
• natural gas November contract: $2.733 per thousand cubic feet, down 0.47%. Year to date, gas has a nearly 9% lead.

“War sirens in the Middle East had prompted oil tourists to flock to the city to buy the oil rush,” Manish Raj, managing director of Velandera Energy Partners, told CNBC.

“Sophisticated oil investors have seen this movie before – these are the people who take advantage of war hype and buy back when prices normalize,” Raj said.

The market was also disappointed that Chinese officials did not announce any new stimulus packages at a press conference on Tuesday.

Ahead of the recent escalation in the Middle East, the market was gripped by a pessimistic mood due to weak demand in China, the world’s largest crude oil importer, and fears that oil supply will exceed demand in 2025. At the beginning of September, oil prices reached their lowest level since December 2021.

“Concerns about Chinese demand remain due to a lack of economic stimulus, while the Middle East conflict has not resulted in any supply disruptions,” Svetlana Tretyakova, senior oil market analyst at Rystad Energy, told CNBC.

“Furthermore, the price decline could be due to profit-taking after two weeks of gains, not pure fundamentals,” Tretyakova said.