Oil prices extended losses on Tuesday after Israel signalled a diplomatic solution to the war in Lebanon, adding to a more than 6 per cent drop in the previous session on Monday after Israel carried out its retaliatory strike on Iran at the weekend

Brent crude futures settled down 30 cents, or 0.4 per cent at $71.12 a barrel while the US West Texas Intermediate (WTI) crude shed 17 cents, or 0.3 per cent to $67.21 a barrel.

Israel’s Prime Minister, Mr Benjamin Netanyahu will hold a meeting on Tuesday evening with ministers and the heads of the country’s military and intelligence community about talks for a diplomatic solution to the war in Lebanon.

Recall that Israel is currently embroiled in fighting with two separate groups, Hamas and Hezbollah backed by Iran in the Middle East.

Meanwhile, Iran said it will use all available tools to respond to Israel’s weekend attack. If this happens, it could create a fresh wave of tensions.

Also pressuring prices is the declining oil demand from China, the world’s largest crude oil importer, which continues to impact global oil consumption and prices.

Market analysts note that demand will return to normal growth rates after Chinese President Xi Jinping introduces new stimulus measures to the economy.

According to the American Petroleum Institute (API), crude oil inventories in the US fell by 573,000 barrels for the week ending October 25. The API reported a 1.643-million-barrel build in crude inventories for the week prior.

So far this year, crude oil inventories in the world’s largest oil producer have slumped by just over 6 million barrels since the beginning of the year, according to API data.

Official US government data from the Energy Information Administration (EIA) is expected later on Wednesday.

The US Federal Reserve will cut interest rates by 25 basis points on November 7. Lower interest rates cut the cost of borrowing, which can buoy economic activity and boost oil demand.

Oil prices dipped over 6 percent as the market reacted to Israel’s limited attacks on Iran on Monday.

Brent futures settled at $71.42 a barrel, down $4.63 or 6.09 percent while the US West Texas Intermediate (WTI) crude futures finished at $67.38 a barrel, $4.40 or 6.13 percent.

Over the weekend, jets from Israel completed three waves of strikes before dawn against missile factories and other sites near Tehran and in western Iran, heightening tensions in the region further.

The attacks were more tailored toward military targets – including Iran’s air defences, as well as missile and drone production, and launch facilities – easing fears that Israel might attack Iran’s nuclear facilities or oil infrastructure.

Also, Iran’s Supreme Leader Ayatollah Ali Khamenei helped cool tensions on Sunday when he signalled there would not be any direct response to Israel’s latest attacks.

The markets have been waiting for the majority of the month for a retaliation by Israel following the direct Iranian offensive against the Jewish state earlier this month. Broader Middle East tensions have continued to rise after the attack on Israel by Iran-backed Hamas on October 7 of last year.

Iran accounts for up to 4 per cent of global oil supplies, according to the US Energy Information Administration (EIA).

This development has led analysts like Citi to lower Brent’s price target for the next three months to $70 a barrel from $74, factoring in a lower risk premium in the near term.

A de-escalation that will cause markets to refocus on surplus supply and lacklustre demand, the analysts added.

The Organisation of the Petroleum Exporting Countries and its allies in OPEC+ kept oil output policy unchanged last month, including a plan to start raising output in December.

The group will meet on December 1 ahead of a full meeting of OPEC+

Even before the latest developments, Goldman Sachs had warned that there was limited upside for oil prices in 2025, citing spare capacity and weak demand.

Market attention will also turn to Hamas‑Israel and Israel‑Hezbollah cease-fire talks that resumed over the weekend.

Global oil prices retraced on Monday after reports showed Israel strikes avoid Iran’s oil facilities in its much anticipated retaliatory attack.

Brent crude oil, against which Nigerian oil is priced, declined below $72 per barrel while the US West Texas Intermediate crude oil was trading near $68.

Israel Defense Forces (IDF) said it attacked military targets across Iran on Saturday and struck “strategic systems.”

“We drew upon only some of our abilities,” Chief of Staff Lt. Gen. Herzi Halevi said in the clip, part of a meeting in which top brass assessed the results of the assault, a retaliation for Iran’s massive Oct. 1 ballistic missile barrage on Israel. “We have the ability to do much more.”

“We hit strategic systems in Iran… and we will see how things develop now. We are ready for all scenarios on all fronts,” he added.

Experts are now predicting a further decline in the price of crude oil and expected uncertainty surrounding the United States election to impact commodity prices in the remaining part of the year.

“We may see further short-term downward pressure as the geopolitical premium is priced out,” said Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management. “However, we see strong support around $70 and, with last night’s price drop, most of the geopolitical premium is likely already priced out.”