Oil Prices Fall as Hope of Ceasefire in Middle East Increases
Trading below $80 per barrel apiece on Tuesday, prices of crude oil in the global commodity market have come under renewed pressure following progress towards a ceasefire between Israel and Hamas.
This has the potential to reduce pressure on energy costs, as oil prices have been trading on the high side since the Russia-Ukraine war began. Brent crude dropped to $77.05 per, representing a 0.79% decline from the previous session’s close of $77.66.
US benchmark West Texas Intermediate (WTI) decreased by 0.81% to $73.06 per barrel, after closing at $73.66 in the prior session.
Yesterday, Brent settled a little more than 2.5% lower on the day, which saw the front-month contract close well below US$78 per barrel, said Warren Patterson and Ewa Manthey commodities strategists at ING. Analysts noted that sentiment in the crude oil market remains bearish. Demand concerns centred on China continue to linger. Recent data releases, reinforce the view of weaker Chinese oil demand.
Chinese’ trade and industrial output numbers last week suggested that apparent oil demand continued to trend lower in July. These worries mean that speculators continue to be hesitant about jumping into the market, despite expectations for a deficit environment for the remainder of the year.
While the speculative net long in ICE Brent increased over the last reporting week, this was predominantly driven by short covering, rather than fresh longs.
The other key development weighing on prices is the prospect of a ceasefire between Israel and Hamas. Antony Blinken, the US Secretary of State has said that Israel has accepted a ceasefire, or at least a “bridging” proposal for a ceasefire.
This has helped ease some fears over supply risks hanging over the oil market. The positive impacts over cease-fire talks in the Middle East, where the majority of global oil reserves are located, ease supply concerns in the markets and aid the decrease in oil prices.
On Monday Blinken, who arrived in Israel on Sunday evening to advance efforts to reach a cease-fire deal, said Israeli Prime Minister Benjamin Netanyahu had accepted a new ‘bridging proposal’ for a Gaza cease-fire and prisoner swap deal.
Though Hamas said the new proposal meets Netanyahu’s conditions, ‘particularly his refusal of a permanent cease-fire, a complete withdrawal from the Gaza Strip.’
The US, Egypt and Qatar held cease-fire talks in the Qatari capital Doha last week, where they presented Israel and Hamas with the proposal to further narrow ‘remaining gaps in a manner that allows for a swift implementation of the deal.’
As a next step, Blinken said Hamas and Israel need to come together under the mediation of the US, Egypt and Qatar and reach a decision on how to implement the commitments and complete the process.
Officials are now set to gather in the Egyptian capital Cairo for negotiations this week, the White House announced on Monday.
Oil prices are likely to remain sensitive to how this evolves, ING commodities strategists said in the note today. Elsewhere, EU gas storage is 90% full now, hitting the European Commission’s target more than 2 months ahead of schedule and, assuming no supply shocks, should leave storage close to 100% full ahead of the next heating season.
However, the market is clearly more focused on supply risks, and these are keeping European gas prices at elevated levels. Risks are still centred around Russian pipeline flows through Ukraine with developments in the Kursk region of Russia leaving these flows vulnerable to supply disruptions. FG to Begin Crude Oil Sales in Naira October
