The decline in U.S. crude prices exceeds 4% due to the uncertainty of an attack on Iran's oil industry.

• According to NBC News, three senior Biden administration officials revealed that Israel intends to restrict its response to Iranian attacks to military targets.
• Earlier this month, Iran's ballistic missile attack against Israel caused oil prices to increase.
• The price of oil has decreased significantly since the peak reached following the October 1 attack by Iran.

On Tuesday, U.S. crude futures dropped over 4% as Israel informed the U.S. that it does not intend to attack Iran's oil facilities, easing concerns about a potential oil supply disruption in the Middle East.

According to three senior Biden administration officials, Israel intends to restrict its retaliatory strikes in Iran to military targets and does not plan to target the Islamic Republic's oil industry or its nuclear facilities.

Earlier this month, oil prices increased due to Iran's ballistic missile attack on Israel, causing concern that Israel's response could lead to an escalation cycle that disrupts crude supplies in the region.

According to Helima Croft, head of global commodity strategy at RBC Capital Markets, geopolitical risk has disappeared from the market, as stated on CNBC's "The Exchange."

Here are Tuesday's closing energy prices:

• The November contract price for crude oil is $70.58 per barrel, which is a decrease of $3.25 or 4.4%, and year-to-date, the U.S. crude oil market has experienced a decline of more than 1%.
• The December contract price for oil is $74.25 per barrel, which is a decrease of $3.21 or 4.14%, and the global benchmark has declined more than 3% year to date.
• The price of gasoline in November was $2.0377 per gallon, which represents a 3.36% decrease compared to the previous month. Year-to-date, gasoline prices have decreased by approximately 3%.
• The November contract price for gas is $2.498 per thousand cubic feet, representing a 0.16% increase. Year-to-date, gas prices have been marginally lower.

The decline in oil prices from their peak following Iran's Oct. 1 attack has been substantial. Despite Israel's decision not to retaliate, traders are now focusing on market fundamentals, with a predicted oil surplus anticipated for next year.

If Israel launches a major strike on military targets in Iran that causes casualties, the Islamic Republic's response could lead to an escalation of the conflict, potentially resulting in an oil disruption.

Israel could be holding the oil card in reserve until they see how Iran responds to their strike, said Croft, who noted that the White House was sufficiently concerned about Iranian retaliation that they really worked very hard to get Israel to walk back its potential target list.

Global demand outlook weakens

For the third month in a row, OPEC reduced its 2024 oil forecast, while the International Energy Agency anticipates demand to increase by only 900,000 barrels per day in 2024 and 1 million bpd in 2025, a significant decrease compared to the 2 million bpd growth rate in the post-pandemic period.

The IEA report published on Tuesday stated that Chinese oil demand is experiencing a significant decline, with consumption dropping by 500,000 bpd in August, marking the fourth consecutive month of decline. On the other hand, crude production in the Americas, particularly in the US, is expected to increase by 1.5 million bpd in the coming year and the next, according to the IEA.

The IEA stated that its members are ready to act if there is a supply interruption in the Middle East.

The IEA stated in its monthly report that, although there is currently a supply flow, a significant disruption could lead to a surplus in the market in the new year.

If there is a supply disruption, OPEC has millions of barrels per day in spare capacity that could be utilized. However, Saudi Arabia may not act immediately, according to Croft.

"If there is an escalation, the Saudis will be cautious about bringing back barrels and will wait for a physical supply disruption before taking action."