Oil Drops As Investor Concerns Over Middle East Conflict Ease

However, analysts disagree on consequences if the Israel/Hamas conflict escalates: File Image/Pixabay

Diplomatic attempts to contain the conflict between Israel and Hamas continued to impress crude traders on Monday, to the point where their concerns about supply disruptions were further eased – and as a result, oil prices fell again, this time by over 2 percent, the most in two weeks.

Brent settled down $2.33, or 2.5 percent, at $89.83 per barrel, while West Texas Intermediate settled down $2.59, or 2.9 percent, at $85.49 per barrel.

Phil Flynn, senior market analyst at Price Futures Group Inc., said, "People are paring back positions until they see how this plays out."

JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a note to clients that Brent is overinflated by about $7 per barrel, an "appropriate" premium given the volatile geopolitical circumstances.

Kaneva added that 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: "Even if the fighting spreads beyond Israel and the Palestinian territories, it is unlikely to result in a prolonged oil price spike."

But many observers doubt that Israel will be dissuaded from starting a ground war in Gaza in retaliation for the mass slaughter of Israelis by Hamas, and accordingly Tamas Varga, an analyst with PVM, warned that "Escalating wrath in the region will strengthen economic headwinds, potentially rising oil prices will push global inflation higher, monetary tightening could resume, and global oil demand growth will be dented."

In other oil related news on Monday, Michael Tran, analyst at RBC, assessed the ramifications of Washington last week announcing the suspension of sanctions on Venezuela, after a Venezuelan government deal with the opposition was agreed to.

He wrote, "The move is expected to add 200-300,000 barrels per day of Venezuelan crude to the global export market, which isn't necessarily a market-moving event on its own, nor are those barrels expected imminently."

Also on Monday, Chevron stated that its acquisition of Hess Corp. for $53 billion adds a major oil field in Guyana as well as shale properties in the Bakken Formation in North Dakota.

The Chevron-Hess deal comes less than two weeks after Exxon Mobil said it would acquire Pioneer Natural Resources for about $60 billion.