The oil market rebounded on Tuesday following a strong bearish trend that plunged crude prices lower on Monday following Israel’s retaliatory attack on Iran at the weekend.

While it is still not clear if and how Iran will retaliate, the market is clearly of the view that supply risks have eased for now, ING said in a note.

Brent crude increased $71.32 per barrel. The US benchmark West Texas Intermediate also rose by 0.45% to $67.68 per barrel, compared to $67.38 at the prior session’s close.

Over the last month, both benchmarks had increased with concern that any Israeli attack on Iran’s energy infrastructure would lead to a wider regional war in the Middle East, where most of the oil resources are located.

Oil prices slumped over 6% on Monday as Israel’s retaliatory strikes on Iran avoided oil and nuclear facilities. Easing geopolitical risks dragged down oil prices, triggering a selloff across markets.

However, tension in the Middle East remains elevated. Iranian President Masoud Pezeshkian said that they did not want war, but they would protect their rights and respond appropriately to Israel’s aggression.

The surge in the US dollar ahead of the run-up to the elections has also aided the decline in oil prices. Generally, a strong dollar reduces demand by making oil more expensive for foreign currency users.

Meanwhile, the US plan to buy oil for the Strategic Petroleum Reserve (SPR) provided some support to prices.

On Monday, the US Department of Energy’s Office of Petroleum Reserves announced a new solicitation for up to 3 million barrels of oil for delivery to the SPRs from April 2025 through May 2025.

ING analysts said the targeted response from Israel does leave the door open for de-escalation, which would allow fundamentals once again to be the dominant driver for the market.

“And fundamentals are expected to be bearish through 2025. Given the geopolitical uncertainty, many market participants have been protecting themselves from potential spikes higher through the options market”.

The Biden administration is looking to buy up to 3 million barrels of crude oil for the Strategic Petroleum Reserve (SPR) for delivery at the Bryan Mound site from April-May 2025, according to ING.

The Department of Energy has so far bought more than 55 million barrels of crude oil for the SPR at an average price of $76/bbl, compared to the roughly $95/bbl the DoE received from emergency sales in 2022.

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