Oil falls after China briefing with eyes on Israel-Iran conflict

Bloomberg: Oil declined after China’s highly anticipated Finance Ministry briefing on Saturday lacked new incentives to boost consumption in the biggest importer, with the specter of Israeli strikes on Iran hanging over the market.

Brent (BZ=F) fell almost 2% early on Monday before recovering to trade near $78. West Texas Intermediate dropped below $75. Despite Beijing’s promises of more support for the struggling property sector and hinting at greater government borrowing, the briefing didn’t produce the headline dollar figure for fresh fiscal stimulus that the markets had sought.

Meanwhile, oil traders are continuing to monitor Israel’s response to Iran’s Oct. 1 ballistic missile attack, with one report suggesting it has narrowed down potential targets to military and energy infrastructure. Over the weekend, a Hezbollah drone attack killed four Israeli soldiers, while the Pentagon said it would send an advanced missile defense system and associated troops to help shield its ally.

“The retaliation by Israel — everyone is waiting for it,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “The oil market is still on high alert.”

Brent has risen about 9% this month as the prospect of an escalation in the Middle East conflict threatens output from a region that supplies about a third of the world’s oil.

The tensions have seen hedge funds flee bearish bets against the crude benchmark at the fastest pace in nearly eight years, while bearish bets on diesel futures plunged by the most on record.

As traders await Israel’s retaliation on Iran, options markets continue to price significant premiums for bullish contracts. For WTI, calls are at the biggest premium to puts since 2022, when Russia invaded Ukraine. Weekly volumes for Brent options were the second-highest on record last week, having hit a weekly record the previous week.