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LONDON: Iran’s weekend attack on Israel has increased geopolitical risks in the oil market for the near term, prompting some banks to raise their price forecasts.

Iran fired over 300 drones and missiles at Israel late on Saturday in retaliation for a suspected Israeli attack on its consulate in Syria on April 1, a first direct attack on Israeli territory that has stoked fears of a wider Middle East war.

Citi on Monday raised its short-term oil forecasts to $88 per barrel from $80 on higher risk premium. However, Citi said it believes the current market is not currently pricing in a potential continuation of an all-out conflict between Iran and Israel that could push oil to $100 plus per barrel.

Any de-escalation could see prices falling back quite sharply to the high $70s or low $80s per barrel range, Citi added.

Two senior Israeli ministers have signalled that retaliation against Iran is not imminent and that Israel will not act alone.

Societe Generale said in a note that geopolitical risk is likely to become embedded in crude prices for the foreseeable future.

Socgen raised its Brent forecast to $91 per barrel in the second quarter and WTI to $87.5, and expects Brent to average $86.8 and WTI $83.3 in 2024.

“We still view direct US/Iran military action as a tail risk, its probability has increased from 5% to 15% with crude prices under such a scenario easily spiking above $140,” Socgen added.

Meanwhile, Brent futures for June delivery fell 81 cents, or about 0.9%, to $89.64 a barrel by 1335 GMT while WTI futures for May delivery were down 69 cents, or about 0.8%, at $84.97. Oil benchmarks had risen on Friday in anticipation of Iran’s retaliatory attack.

Britain, France, Germany and the European Union’s foreign policy chief all joined Washington and United Nations Secretary-General Antonio Guterres in calling for restraint in the Iran-Israel conflict.

J.P. Morgan said in a note that the outlook for oil seems to hinge on any Israeli military response to the Iranian attack.

“Beyond the short-term spike induced by geopolitics, our base case for oil remains a $90 Brent through May,” J.P. Morgan said.

Kpler analyst Viktor Katona said: “If we have an unpredicted supply disruption say, Libyan supply is cut or Russian port infrastructure is droned by Ukraine, (then) prices could definitely spiral out of control again, towards $100/bbl.”

Earlier this month, a Ukrainian drone struck Russia’s third-largest oil refinery. According to Reuters calculations, around 14% of Russia’s refining capacity has been shut down by drone attacks with the war in Ukraine now in its third year.

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