Oil dips on investor caution as market eyes Middle East turmoil. After rising more than 4% the previous day, oil prices fell on Tuesday as traders exercised caution and kept an eye out for any possible supply interruptions caused by armed hostilities between Israel and the Palestinian Islamist organization Hamas.

By 0630 GMT, Brent oil was down 56 cents, or 0.6%, to $87.59 per barrel, while West Texas Intermediate crude in the United States was down 56 cents, or 0.6%, to $85.82 per barrel.

Due to Monday’s hostilities, both benchmarks increased by more than $3.50 as worries that the war would move outside of Gaza and into the oil-rich area increased. On Saturday, Hamas launched the biggest military attack on Israel in decades. On Monday night, the battle raged as Israel responded with a barrage of airstrikes on Gaza.

According to ING analysts on Tuesday, “there is still plenty of uncertainty across markets following the attacks in Israel over the weekend,” adding that oil prices are already factoring in a risk premium.

“Prices would increase more if the accusations of Iran’s involvement prove to be accurate since the U.S. oil sanctions against Iran would likely be enforced more aggressively. The ING analysts continued, “That would further tighten an already tight market.

Even though Israel only produces a small amount of crude oil, markets were concerned that if the war intensified, it may harm Middle East supplies and aggravate an anticipated shortfall for the remainder of the year.

According to reports, the Ashkelon oil facility and port in Israel have been closed due to the fighting.

Even though the United States has no intelligence or proof pointing to Iran’s direct involvement in the assaults, Iran is involved, a White House official claimed on Monday.

Vivek Dhar, an energy analyst at CBA, said: “If the U.S. finds evidence directly implicating Iran, then the immediate reduction in Iran’s oil exports becomes a reality.”

The Palestine-Israel crisis increases the probability of Brent futures tracking at $100/bbl and higher, according to Dhar. “We continue to believe that Brent oil will ultimately stabilise between $90-$100/bbl in Q4 2023,” he said.

An improvement in negotiations between Venezuela and the U.S. may relieve Caracas of certain sanctions by allowing at least one more foreign oil company to purchase Venezuelan crude oil under certain restrictions.