Oil prices tumbled $5 a barrel, or over 6%, on Monday after Iran attacked a US military base in Qatar in retaliation for US attacks on its nuclear facilities at the weekend, and took no action to disrupt oil and gas tanker traffic through the Strait of Hormuz.
Brent crude futures were down $4.90, or 6.3%, at $72.19 a barrel by 2:13pm ET (1813 GMT). US West Texas Intermediate crude (WTI) eased $4.60, or 6.2%, to $69.23.
Global benchmark Brent had kicked off the week with nearly 6% jump to a five-month high as markets opened after US President Donald Trump said on Saturday he had "obliterated" Iran's main nuclear sites in airstrikes, joining an Israeli assault in an escalation of conflict in the Middle East as Tehran vowed to defend itself.
Iran, which is OPEC's third-largest crude producer, said on Monday that the US attack on its nuclear sites expanded the range of legitimate targets for its armed forces.
The oil market, however, started to sell off after Iran retaliated, saying it carried out a missile attack on the Al Udeid US airbase in Qatar, the largest US military installation in the Middle East.
Also Read: Iran launches missile attacks on US bases in Qatar
"Oil flows for now aren't the primary target and are likely not to be impacted, I think it's going to be military retaliation on US bases and/or trying to hit more of the Israeli civilian targets," said John Kilduff, a partner at Again Capital.
There was no interruption to QatarEnergy shipments or production after the attack, a source with direct knowledge of the matter said, and no other Iranian attack detected at any US military base other than in Qatar, a US military official told Reuters.
"It is somewhat the lesser of the two evils. It seems unlikely that they're going to try and close the Strait of Hormuz," said Kpler analyst Matt Smith.
About a fifth of global oil supply flows through the Strait. However, a complete shutdown is unlikely, analysts have said.
Even so, at least two supertankers made U-turns near the Strait of Hormuz following the US military strikes on Iran, ship tracking data shows, as more than a week of violence in the region prompted vessels to speed, pause, or alter their journeys.
A telegraphed attack on a well-defended US base could be a first step in reducing tensions provided there are no US casualties, Energy Aspects said in a post.
Also Read: Qatar vows right to respond after Iranian missile attack on US airbase
"Unless there are indications of further Iranian retaliation or escalation by Israel/the US then we may see some geopolitical risk premium come out of the price in subsequent days," it said.
Meanwhile, Trump expressed a desire to see oil prices kept down amid fears that ongoing fighting in the Middle East could cause them to spike. On his Truth Social platform, he addressed the US Department of Energy, encouraging "drill, baby, drill" and saying, "I mean now."
Investors are still weighing up the extent of the geopolitical risk premium, given the Middle East crisis has yet to crimp supply.
HSBC expects Brent prices to spike above $80 a barrel to factor in a higher probability of a Strait of Hormuz closure, but to recede again if the threat of disruption does not materialise, the bank said on Monday.
Iraq's state-run Basra Oil Company said international oil majors, including BP, TotalEnergies and Eni, had evacuated some staff members working in oilfields.
