Oil futures fell early Monday, extending the previous week’s steep decline, as traders looked past a series of retaliatory strikes on Iran-backed militants by a U.S.-led coalition over the weekend.
Analysts said markets remain unconvinced conflict in the Middle East will expand in a way that threatens crude supplies, while traders were also keeping a wary eye on Chinese economic data amid concerns over the outlook for global crude demand.
West Texas Intermediate crude for March delivery
fell 44 cents, or 0.6%, to $71.84 a barrel on the New York Mercantile Exchange.
April Brent crude
the global benchmark, was off 36 cents, or 0.5%, at $76.97 a barrel on ICE Futures Europe.
WTI dropped 7.4% and Brent lost 6.8% last week, with both grades finishing at three week lows on Friday. Pressure was attributed in part to news reports indicating progress toward a cease-fire deal between Israel and Hamas.
The U.S. carried out strikes on dozens of Iran paramilitaries and Tehran-backed militias late Friday in response to a drone attack that killed three U.S. troops in Jordan the previous weekend. The U.S. and U.K. also carried out further strikes against Iran-backed Houthi militants in Yemen who have targeted shipping in the Red Sea with drone and missile attacks, resulting in a spike in shipping rates.
“While developments in the Red Sea are having an impact on some physical markets, on the whole, oil supply remains unaffected,” Ewa Manthey and Warren Patterson, strategists at ING, said in a note.
“Furthermore, the oil market is largely balanced in 1Q24 and OPEC is sitting on a large amount of spare capacity, leaving the market fairly comfortable,” they wrote. “However, this could quickly change if tensions spread to other parts of the Middle East.”
The Caixin/S&P Global services purchasing managers index for January fell to 52.7 from 52.9, according to news reports, remaining in expansion territory above 50.
“The weak performance of oil came at the beginning of the week after the slightly weaker than expected growth in services activities in China, in addition to what appears to be a calming of fears about the escalation of military actions in the Middle East,” Samer Hasn, market analyst at XS, said in emailed comments.