Crude oil slammed in biggest one-day percentage drop since July 2022

Benchmark crude oil futures fell Monday in their largest one-day decline in more than two years after Israel’s weekend strikes on Iran avoided energy facilities and ease worries of a wider war that could disrupt global supplies.

Israel bombed missile production sites and air defense systems in three Iranian provinces, but analysts said the lack of strikes on oil or nuclear facilities leaves the door open for both sides to de-escalate the conflict.

Meanwhile, Iran’s Supreme Leader Ayatollah Ali Khamenei refrained from pledging immediate retaliation.

Oil futures’ sharp slide weighed on the stock prices of oil-related companies, making energy (NYSEARCA:XLE) the S&P 500’s worst performing sector in an otherwise upbeat session for stocks.

APA Corp. (APA) was the day’s biggest loser on the S&P, -4.5%, and Diamondback Energy (FANG) closed -3.6%; several big names, including Exxon Mobil (XOM), Chevron (CVX) and Marathon Petroleum (MPC) fell to multi-week lows before paring losses.

Separately, the Department of Energy said it is seeking to buy up to 3M barrels of oil for the U.S. Strategic Petroleum Reserve as prices fall further from its $79/bbl target acquisition price.

Front-month Nymex crude (CL1:COM) for December delivery closed -6.1% to $67.38/bbl, and front-month December Brent crude (CO1:COM) also finished -6.1% to $71.42/bbl, the largest one-day percentage decline for both benchmarks since July 12, 2022.

Last week, WTI and Brent gained more than 4% on uncertainty over the looming U.S. election and the extent of Israel’s expected response to the earlier Iranian missile attack.

U.S. natural gas also plunged, as the selloff in oil combined with a pickup in production and some near-term loss of weather-driven demand; front-month November Nymex natural gas (NG1:COM) settled -9.8% to $2.309/MMBtu.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

Citi analysts lowered their Brent price estimate for Q4 to $70/bbl from $74/bbl after Israel’s attack on Iran was less severe than feared, avoiding oil and nuclear facilities.

“The recent Israel military action is unlikely to be seen by the market as leading to an escalation that impacts oil supply, and as such we expect a lower geopolitical risk premium in our base case than we previously assumed,” Citi said, raising the probability for the base case to 70% from 60%.

The bank did not rule out a bullish scenario that would lift Brent as high as $120/bbl, but put the odds of that happening at no more than 10%.