In what could soon prove to be a spectacular display of naïve optimism, oil traders on Friday regarded Hamas's release of two U.S. hostages from Gaza as a sign its conflict with Israel conflict might de-escalate – and accordingly, oil prices settled slightly lower.
Brent settled down 22 cents at $92.16 per barrel while West Texas Intermediate settled down 62 cents at $88.75 per barrel; the more active December WTI contract settled down 29 cents at $88.08 per barrel.
Both benchmarks rose over 1 percent for the week, a second straight weekly jump.
Phil Flynn, senior market analyst at Price Futures Group Inc., summarized investment sentiment on Friday by saying, "The market went from starting the day with little hope and went to possible signs that there may be some way out of this crisis."
JPMorgan Chase & Co. analysts including Natasha Kaneva were also optimistic, but for slightly different reasons: they pointed out in a report that even if the conflict spread, it would not necessarily lead to sustained higher prices, and they added that geopolitical risks have pushed prices about $7 higher than they would otherwise be.
Paris-based Allianz Trade disagreed: on Friday Ana Boata, Allianz's head of economic research, told Bloomberg Television that a broader conflict could result in oil hitting as much as $140 per barrel and plummet the world into a recession.
"Clearly we don't have this as a baseline scenario for now," Boata said, "but clearly we can give a probability of 20 percent to this downside scenario."
In other oil related news on Friday, Washington said it would lift sanctions on Venezuela's oil industry in exchange for its government agreeing to hold elections next year; the Department of the Treasury issued general licenses for oil and gas transactions and removed the ban on secondary trading.
Also, the U.S. announced it will buy another 6 million barrels of crude oil for its Strategic Petroleum Reserves—but at a price significantly lower than current market levels.