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Picture: REUTERS
Picture: REUTERS

Singapore — Oil prices fell more than $1 on Tuesday as traders took profits from a rally in the previous session that lifted the market to its highest level in over a month amid fears that the Middle East could be on the brink of a region-wide war.

Brent crude futures fell $1.17, or 1.5%, to $79.76 a barrel at about 4.20am GMT. US West Texas Intermediate (WTI) futures fell $1.19, or 1.6%, to $75.95 a barrel.

Both contracts rose more than 3% on Monday to their highest levels since late-August, adding to last week’s rally of 8%, the biggest weekly gain in over a year, on the worry that escalating hostilities could disrupt oil supply from the Middle East.

Fighting in the Middle East intensified after Iran-backed Hezbollah fired rockets at Israel’s third-largest city, Haifa, and Israel looked poised to expand its offensive into Lebanon, a year after the Hamas attack on Israel that sparked Israel's ongoing war in Gaza.

“The geopolitical tensions in the Middle East rock on, but there has been some paring of exposure lately on some expectations that any disruptions to energy supplies may be more measured,” said Yeap Jun Rong, market strategist at IG.

“Of course, more clarity still awaits on how Israel will retaliate towards Iran, and we may expect prices to remain supported amid the pricing of geopolitical risks.”

The oil price rally began after Iran launched a missile barrage on Israel on October 1. Israel has sworn to retaliate and is weighing its options, with Iran’s oil facilities considered a possible target.

However, some analysts say an attack on Iranian oil infrastructure is unlikely, warning that oil prices could face considerable downward pressure if Israel focuses on any other target.

Even if an attack targets Iranian oil facilities, there was 7-million barrels a day of spare supply capacity within oil cartel Opec to make up for the loss of its oil output, ANZ Bank analysts noted on Friday.

Developments in the Middle East would also do little to change the oil demand outlook, which continued to look sombre, said Phillip Nova analyst Priyanka Sachdeva, adding the market was awaiting US inflation data on Thursday for a view on the world’s biggest economy.

While investors have been concerned about slow growth dampening fuel demand in China, the country’s National Development and Reform Commission (NDRC) on Tuesday said it was fully confident of achieving its full-year economic targets.

In the US, Hurricane Milton intensified into a category 5 storm on its way to Florida after forcing at least one oil and gas platform in the US Gulf of Mexico to shut on Monday.

Traders will be also looking out for the latest US crude oil inventory data, with analysts expecting stocks to rise by 1.9-million barrels in the week ended October 4, according to a preliminary Reuters poll.

The American Petroleum Institute is due to post its tally of US stockpiles at 8.30pm GMT on Tuesday, followed by the official tally from the Energy Information Administration at 2.30pm GMT on Wednesday. 

Reuters

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