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Oil plunged the most in more than two weeks amid signs Israel is rethinking the scope of a potential invasion of Gaza, at least temporarily containing the conflict in the Middle East.
West Texas Intermediate settled below $86 a barrel on Monday after a volatile session that saw prices drop 2.9%, the biggest decline since Israel was attacked by Hamas. Israel appeared to hold off on its widely expected ground offensive into the Gaza Strip to buy time for the release of hostages. Additionally, a group of 27 European Union leaders aims to endorse a “humanitarian pause” to distribute aid in Gaza.
Brent prices are overinflated by about $7 a barrel, an “appropriate” premium amid the uncertainty in the market, JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a note to clients. With the exception of the Yom Kippur War of 1973, none of the other 10 major military conflicts involving Israel since 1967 had a lasting effect on crude prices, she said.
“Even if the fighting spreads beyond Israel and the Palestinian territories, it is unlikely to result in a prolonged oil price spike,” Kaneva said in the note.
Oil has advanced since the Oct. 7 attack on Israel by Hamas amid concerns the conflict will drag in other countries, though the lack of any immediate disruptions have limited the gain. The Middle East supplies about a third of the world’s crude, and risks to the region include Washington ramping up compliance checks on sanctioned Iranian oil and Tehran disrupting key shipping routes.
“There is significant asymmetric upside to near-term oil prices in the event that the Israel-Hamas war escalates into a wider-spread regional conflict,” Royal Bank of Canada analysts including Michael Tran and Helima Croft wrote in a report.
Yet, the prospect of more Venezuelan crude exports has partially offset the war’s risk premium after the US took the first steps in pulling back on its sanctions policy last week. Chevron Corp., Rosneft PJSC and Repsol SA are among the companies poised to benefit from the reopening.
Prices:
- WTI for December delivery dropped $2.59 to settle at $85.49 a barrel in New York.
- Brent for December settlement declined $2.33 to settle at $89.93 a barrel.
Elsewhere in crude markets, Chevron agreed to buy Hess Corp. for $53 billion. Buying Hess will give Chevron 30% ownership of more than 11 billion barrels-equivalent of recoverable resources in Guyana, one of the world’s major new oil producers. It also adds acreage in the Gulf of Mexico and the Bakken shale basin.
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