Crude oil futures sell off after surging on Middle East war risk

Crude oil futures fell more than 4% on Tuesday as the rally spurred by heightened geopolitical risk paused while the market waits for Israel to strike back against Iran.

"Oil can keep ascending only for so long, purely based on perceptions and not actual supply disruption," Tamas Varga, an analyst at oil broker PVM, said in a Tuesday note.

Oil prices have surged more than 7% through Tuesday's close since Iran fired roughly 180 ballistic missiles at Israel last week, raising fears that Israel might retaliate by hitting Iran's crude industry.

President Joe Biden, however, has publicly discouraged Israel from hitting Iran's oil infrastructure. Israel will likely hit military and intelligence sites in Iran first, officials told The New York Times.

The Jerusalem Post also reported that Israel is expected to focus on military and intelligence facilities.

Israel Defense Minister Yoav Gallant is scheduled to meet with U.S. Secretary of Defense Lloyd Austin at the Pentagon on Wednesday "to further discuss ongoing security developments in the Middle East," press secretary Maj. Gen. Pat Ryder told reporters in a briefing Monday.

Here are Tuesday's closing energy prices:

"War sirens in the Middle East had prompted oil tourists to flock [to] town to buy the oil rush," Manish Raj, managing director of Velandera Energy Partners, told CNBC.

"Seasoned oil investors have seen this movie before — these are the people who sell on the war hype and buy back when prices normalize," Raj said.

The market was also disappointed that Chinese officials did not announce any new stimulus plans at a press briefing Tuesday.

Prior to the recent escalation in the Middle East, the market was swept by bearish sentiment on soft demand in China, the world's largest