Oil prices did not react sharply on Monday after Hezbollah confirmed that its leader was killed in an Israeli airstrike on the Lebanese capital, Beirut, last Friday.

Over the weekend, the IDF reported that Nasrallah, who led the Iran-backed militant group Hezbollah for more than three decades, was killed in a "targeted strike" by Israel on Friday against the group's headquarters in Beirut.

The incident comes after months of conflict and has raised concerns about a wider conflict involving Iran. The IDF describes Nasrallah as the group's "core decision-maker" and "strategic leader."

But instead of a sharp surge, oil markets fell and were on track for a third straight month of declines, perhaps as a strong supply outlook and questions about demand outweighed concerns that Israeli attacks in Lebanon and Yemen could escalate conflict in the Middle East.

Before the U.S. market opened on Monday, WTI crude oil hovered around $68, and the global benchmark Brent crude oil price once approached the $70 mark, but has now rebounded.

Andy Lipow, president of Lipow Oil Associates, said that despite the increased hostilities across the Middle East, oil supplies have not been disrupted. "The oil market is not expecting an all-out war between Iran and Israel to impact supply," he said.

The incident has had limited disruption to the oil market since the outbreak of the Israeli-Palestinian conflict last year. Lipow elaborated that the oil market remains under pressure due to increased production in the United States, Canada and Guyana, in addition to stagnant Chinese demand and OPEC+ delaying the restoration of production cuts.

"We suspect some oil market participants will look past this escalation as there have been no major physical supply disruptions and Iran has not shown any desire to be drawn into a conflict that has lasted nearly a year," said Helima Croft of RBC Capital Markets.

Instead, oil prices have been subdued by the resolution of Libya’s central bank dispute, which could allow the resumption of 500,000 barrels per day of crude exports, and reports that Saudi Arabia may abandon its $100 a barrel oil price target as OPEC+ begins to unwind voluntary production cuts from December.

“The death of Hezbollah’s leadership could trigger a reaction that could affect oil supply, but since it doesn’t directly impact (oil supply) ... the oil market may not be pricing in much additional risk right now,” said Josh Young, chief investment officer at Bison Interests in New York.

However, both experts noted that a rapid escalation of the conflict could lead to crude oil prices reaching $100 per barrel.

Lipow said the biggest risk to the oil market is the closure of the Strait of Hormuz. He added that while it is unlikely, if it happened, oil prices would rise by $30.

"If events escalate rapidly, any material disruption to Iranian oil supplies or oil exports through the Strait of Hormuz could send oil prices well over $100 a barrel," Young said.

The Strait of Hormuz between Oman and Iran is a vital passage through which about one-fifth of the world's oil production flows every day. It is a strategically important waterway that connects crude oil producers in the Middle East with major global markets.

Separately, OPEC+ producers will meet this week to assess global market conditions and prepare for their already delayed resumption of output. The 23-nation alliance led by Saudi Arabia and Russia has agreed to increase supply from December, two months later than originally planned.

Russian Deputy Prime Minister Alexander Novak said last week the alliance was not ready to discuss any new proposals. Several OPEC+ delegates, speaking on condition of anonymity, said there were no plans to adjust any proposals at Wednesday’s online meeting.

The article is forwarded from: Jinshi Data