Oil prices fell slightly on Monday, despite gaining around 8% over the last two weeks since the Israel-Hamas attacks started.

Brent crude North Sea oil was down by $0.84 to $91.32 per barrel, and the West Texas Intermediate (WTI) equivalent was $0.97 cheaper at $87.11 per barrel.

Last week, Brent traded between $88.88 and $93.48 per barrel, and on Thursday reached its highest level since 29 September of $93.48 due to fears of curtailed supply caused by the conflict in the Middle East.

Economists and oil traders were concerned it could breach the $100 per barrel mark. On Wednesday, WTI reached $89.71pb, the highest since 3 October 2023.

Vivek Dhar, analyst at Commonwealth Bank of Australia, said: “A long occupation looms as the scenario that pushes Brent oil futures above $100 per barrel because it raises the risk that the Israel-Hamas [situation] expands and potentially draws in Iran directly.”

However, Priyanka Sachdeva, market analyst at Phillip Nova, said the crisis was currently “overrated” regarding the market as no barrels have hitherto been lost.

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By GlobalData

Other dynamics imply that oil prices could rise further despite the fall on Monday.

Should Iran become more directly involved in the war through its links with Hamas and Hezbollah, the Lebanese political and militant group, it is likely the US will toughen sanctions on oil exports from Iran.

Robert Ryan, chief strategist at BCA Research, a global macro research provider, said there was a one in four chance that Iranian oil output could fall by one million barrels per day if tougher US sanctions are implemented.

He added that tougher sanctions on Russia would compound the supply issue, potentially leading to $140 per barrel prices next year.

On 11 October, Russia and Saudi Arabia said they would withhold 1% of world demand from the market. Higher prices will boost revenues for the oil-producing states.

However, there is a point where higher prices could dent demand and perhaps prompt Russia and Saudi Arabia to reconsider their supply cuts.