Oil futures declined on Monday, with the global benchmark sliding back below $90 a barrel and U.S. prices ending at a more than three-week low.
A ground incursion into the Gaza Strip by Israeli forces appeared to proceed at a cautious pace, helping to soothe worries over a broadening of the conflict.
West Texas Intermediate crude
for December delivery
fell $3.23, or 3.8%, to settle at $82.31 a barrel on the New York Mercantile Exchange. That’s the lowest for a front-month contract since Oct. 5, according to Dow Jones Market Data.
December Brent crude
the global benchmark, lost $3.03, or nearly 3.4%, to end at $87.45 a barrel on ICE Futures Europe, the lowest since Oct. 12.
declined by 4% to $2.22 a gallon, while November heating oil
fell 2.8% to $2.97 a gallon.
December natural gas
settled at $3.35 per million British thermal units, down 3.8%.
Oil prices have declined, “without an immediate disruption in global supplies and signs that Asian oil demand may be easing just a bit — allowing the market to sell off,” Phil Flynn, senior market analyst at The Price Futures Group, said in a daily report.
“But make no mistake about it the global oil market is still extremely tight, and we don’t have any room for any disruptions of supply, so the pullback may be short-lived as the market awaits more headlines on the progress of the Israeli invasion of Gaza,” he said.
Israeli tanks and infantry advanced to the outskirts of Gaza City on Monday and severed a main road connecting the northern part of the Gaza Strip with the south, The Wall Street Journal reported, while the U.S. and other Western countries pressured Tel Aviv to minimize civilian casualties.
“Just because oil prices cannot find support does not make it a market to short,” Fawad Razaqzada, market analyst at City Index and FOREX.com, said in market commentary on Monday.
““Given the situation in the Middle East and the OPEC+ ongoing intervention, shorting oil in the current environment is akin to playing with fire…””
“Given the situation in the Middle East and the OPEC+ ongoing intervention, shorting oil in the current environment is akin to playing with fire, so I am not even entertaining the idea of it,” he said.
Oil futures jumped nearly 3% on Friday, but suffered weekly declines, eroding the modest risk premium priced into the market since the Oct. 7 attack on southern Israel by Hamas. Crude hasn’t challenged the 2023 highs set in late September.
Analysts said traders will remain sensitive to developments, in particular any sign the conflict could result in direct confrontations with Iran.
“If Iran’s involvement were to lead to a fall in the country’s oil exports, this could pressure an already constrained market — with a 500,000 barrel a day reduction potentially taking Brent crude prices to between $100 and $110, from around $89 at present,” strategists at UBS said in a Monday note.
“In addition, a broadening of the conflict across the region could
cause prices to spike as high as $120/bbl, in our view,” they said.
The UBS strategists said their base case is that a broader war should be avoided, but saw the case for added exposure to Treasurys, while positions in gold and oil could also serve as hedges against continued volatility.