US oil plunges more than 6%, the worst in over two years, Citigroup lowers oil price target, but some warn Iran may retaliate

On Monday, US WTI crude oil plummeted by more than 6%, marking the largest single-day drop in over two years. Prior to this, Iranian energy facilities were not damaged in the attacks launched by Israel over the past weekend, easing concerns about further escalation in the Middle East situation.

By the close of Monday, WTI December crude oil futures fell by $4.48, or 6.13%, to $67.38 per barrel, approaching the closing prices of $67.19 on September 26 and $64.69 on September 10, the latter being the lowest closing price since June 12, 2023. Monday saw the largest single-day drop in US oil prices since July 12, 2022, when oil prices plummeted by 7.93% in a single day.

Brent December crude oil futures fell by $4.63, or 6.09%, to $71.42 per barrel, approaching the closing prices of $71.09 on September 26 and $68.83 on September 10.

According to Xinhua News Agency, the Israeli Defense Forces stated on the 26th that the Israeli military had completed "precise and pinpoint strikes" on multiple military targets in Iran, and Israeli Air Force jets had safely returned to Israel. The Iranian military also stated on the same day that they successfully defended against the Israeli attacks, with the losses caused by the Israeli operation being "limited."

For the oil market, the main focus is on whether Iran's oil facilities have been attacked. The latest Israeli attacks did not hit key oil and nuclear facilities, avoiding locations of oil, nuclear, and civilian infrastructure. Iran's oil industry operations are reported to be normal without interruption. Iran accounts for approximately 4% of global oil supply.

Citigroup analysts stated in their latest report on Monday that the market is unlikely to believe that Israel's recent military actions will escalate the issue of oil supply. Citigroup has lowered its Brent crude oil price forecast for the next three months by $4 to $70 per barrel.

Currently, the prevailing view in the industry is that oil prices will continue to be under pressure for the remainder of the year, and it may be difficult for Brent crude oil prices to reach $80 in the foreseeable future. Some industry insiders point out that due to Israel's deliberate avoidance, perhaps under US persuasion, of targeting Iran's oil facilities, the limited attacks have given hope for a easing of the Middle East situation, leading to a decrease in risk premium by a few dollars per barrel. The oil market has returned to focusing on oversupply concerns.

Currently, oil production in major oil-producing countries such as the US, Canada, and Brazil has been increasing, as well as in smaller countries like Argentina and Senegal.

However, some industry experts also point out that the possibility of Iran retaliating in the coming weeks cannot be ruled out, which would lead to a rise in the oil market's risk premium once again. Some experts predict that direct conflicts between Israel and Iran may continue. Israel has stated that it has the capability and willingness to target Iran's energy and nuclear targets in future strikes.

On Monday, according to Xinhua News Agency, Iran stated that it will not give up its right to respond to Israel's "aggression":

Iranian Foreign Ministry spokesman Baghaei stated at a press conference on the 28th that Iran will not give up its right to respond to Israel's "aggression" against its territory. Baghaei pointed out that responding to Israel's attacks is the right and responsibility of the Iranian government. According to international law, any country that is subjected to aggression and illegal use of force has this right Regardless of the outcome of negotiations and talks, Iran will "resolutely respond in an appropriate manner" to Israel, a decision that will be made by the national armed forces and relevant authorities.

Bagaei also said that the unlimited support from the United States has emboldened Israel to continue committing "crimes" in the Middle East. He called on U.S. officials to stop providing weapons, intelligence, and political support to Israel, rather than allowing other countries to exercise restraint.

In addition, some industry insiders pointed out that the market will also focus on the resumption of Hamas-Israel and Israel-Hezbollah ceasefire negotiations over the weekend. Despite Israel's choice of a less aggressive response to Iran, doubts remain about whether Israel, Hamas, and Hezbollah can achieve a lasting ceasefire.

On the same day, the financial and economic blog Zerohedge shared a chart of crude oil and U.S. bond yields. For a long time, the two trends have been highly correlated, but recently there has been a deviation: U.S. bond yields have risen while oil prices have fallen.