U.S. crude futures fell about 5% on Tuesday, after Israel told the U.S. that it is not planning to strike Iran’s oil facilities, relieving fears that a major supply disruption in the Middle East is on the horizon.

Israel plans to limit its retaliatory strikes in Iran to military targets and does not plan to strike the Islamic Republic’s oil industry or its nuclear facilities, three senior Biden administration officials told NBC News.

Oil prices spiked earlier this month after Iran launched a ballistic missile attack against Israel, raising fears that Israel’s response could lead to cycle of further escalation that disrupts crude supplies in the region.

Here are Tuesday’s energy prices around 10:30 am ET:

• West Texas Intermediate November contract: $70.15 per barrel, down $3.68, or 4.98%. Year to date, U.S. crude oil has fallen about 2%.
• Brent December contract: $73.82 per barrel, down $3.64, or 4.7%. Year to date, the global benchmark has declined about 4%.
• RBOB Gasoline November contract:  $2.0211 per gallon, down 4.15%. Year to date, gasoline has pulled back nearly 4%.
• Natural Gas November contract: $2.497 per thousand cubic feet, marginally higher. Year to date, gas has fallen nearly nearly 1%.

But oil prices have pulled back significantly from the highs reached on Iran’s Oct. 1 attack. Israel has refrained from hitting back so far, and traders have shifted focus to market fundamentals as a looming oil surplus is expected next year.

OPEC cut its oil 2024 forecast for the third consecutive month in a row this week. And the International Energy Agency expects demand to grow by just under 900,000 barrels per day in 2024 and 1 million bpd in 2025, a significant slowdown compared to growth of 2 million bpd in post-pandemic period.

Chinese oil demand is particularly weak, with consumption dropping by 500,000 bpd in August, the fourth monthly decline in a row, according to an IEA report published Tuesday. Meanwhile, crude production in the Americas, led by the U.S., is poised to grow by 1.5 million bpd this year and next, the IEA said.

The IEA said its members are prepared to take action if there is a supply disruption in the Middle East.

“For now, supply keeps flowing, and in the absence of a major disruption, the market is faced with a sizeable surplus in the new year,” the IEA said in its monthly report.