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After the benchmark contracts jumped more than $3 in the
session, Brent futures were down 46 cents, or 0.5%, at $86.65 a
barrel by 1015 GMT. The most active U.S. West Texas Intermediate
contract was down 34 cents, or 0.4%, to $82.39.
Israel launched an attack on Iranian soil on Friday, sources
told Reuters. Iranian media reported explosions, but an Iranian
official told Reuters those were caused by air defence systems.
State media said three drones over the central city of Isfahan
had been shot down.
Tehran played down the incident and indicated it had no plans
for retaliation - a response that appeared gauged towards
averting region-wide war.
"Whilst the initial spike in oil may have highlighted the
initial fear of further escalation, we have seen both equities
and crude reverse some of those preliminary moves," said Joshua
Mahony, chief market analyst at Scope Markets.
"Events of the past week appear to be more about showing their
willingness to act rather than actually seeking to incite a war
...For markets this is a best case scenario".
Last weekend Iran launched hundreds of drones and missiles in a
retaliatory strike after a suspected Israeli attack on its
embassy compound in Syria.
Most of the drones and missiles were downed before reaching
Israeli territory, with minimal damage and casualties.
Investors have been closely monitoring Israel's reaction to the
April 13 Iranian drone attacks. The geopolitical risk premium in
oil prices had been unwinding this week on the perception that
any Israeli retaliation to Iran's attack would be moderated by
international pressure.
The U.S. also announced sanctions on Iran, an OPEC member,
targeting its unmanned aerial vehicle production after the
country's attack on Israel. The sanctions on Iran, however,
exclude its oil industry.
(Reporting by Andrew Hayley in Beijing, Florence Tan in
Singapore and Laila Kearney in New York; editing by Sharon
Singleton and Jason Neely)
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