As the conflict between Israel and Hamas appeared to have stabilized in such a way as to remain contained for the time being, oil prices steadied after falling slightly on Monday.
After falling 2.5% over the previous session, European benchmark Brent settled to trade near $90 on Monday, as West Texas Intermediate neared $86. A planned ground invasion of Gaza by the Israeli Defense Forces was postponed, first due to weather, and later to allow negotiations for the release of some 200 hostages. Concerns Hezbollah militants would launch an invasion of Israel from the north, supported by Iran, as well as concerns over Israeli military casualties have also hampered the onset of the invasion.
As a result, absent any immediate disruptions in the supply of oil from the Middle East, the source of roughly a third of the world’s crude supply, the war-risk premium on crude has gradually been eroding. However Brent crude is still up about 7% since the onset of the October 7th attack by Hamas which set off the crisis. Now the main risks to the supply of crude are Washington increasing its compliance checks on sanctioned Iranian crude, and Tehran deciding to disrupt shipping through key supply routes, such as the Strait of Hormuz.
The US meanwhile has pledged to deploy additional military force to the Middle East to deter action by groups such as Hezbollah looking to expand the war. On Monday, however, Hamas freed two hostages for medical reasons, delivering two elderly women to Israeli medical teams at the border with Gaza, calming tensions somewhat.
Priyanka Sachdeva, a senior market analyst at Phillip Nova Pte. said, “The diplomatic efforts in Gaza are indicating the possibility of de-escalation and stripping away the momentum in oil prices. Markets are also eagerly awaiting further clues on the US economy to gauge the domestic demand for fuel.”
Traders have been increasing their bullish positions on oil as the conflict progressed, with money managers making the most bets in seven years, on higher Brent crude prices, over the week through October 17th. In the options market, where much of the most frenzied action has been in the last few days, a record number of Brent calls have changed hands over the past week.
