Peace Prospect Causes Oil To Tumble, Amid Warnings Of Further Selloffs

Meanwhile, BP forecasts robust demand for the next decade: File Image/Pixabay

However tenuous, reports on Monday of a possible peace deal in the Middle East caused a price drop of over 3 percent for crude – but an objective look at the deal strongly suggests that oil's losses may soon be reversed.

Brent settled down $2.16, or 2.8 percent, at $73.01 per barrel, while West Texas Intermediate settled down $2.30, or 3.23 percent, at $68.94 per barrel.

Unnamed Lebanese sources told news outlets that Israel and Lebanon had agreed to the terms of a deal to end the Israel-Hezbollah conflict, and an Israeli official said that country's cabinet would meet Tuesday to approve a truce.

However, this is hardly an end to Israel's multi-pronged attack against hostile forces in the region; plus, there were said to still be substantial issues to address prior to the laying down of arms, and the Lebanese officials added that Israeli prime minister Benjamin Netanyahu was not to be trusted.

While this triggered strong sentiment among investors, oil analysts were more guarded: "A report that Israel's prime minister Netanyahu approves Lebanon ceasefire deal in principle could be a bearish catalyst, yet we must see more details as they become available," stated Phil Flynn, senior market analyst at Price Futures Group Inc.

Giovanni Staunovo, analyst at UBS, added, "It seems the news of a ceasefire between Israel and Lebanon is behind the price drop, though no supply has been disrupted due to the conflict between the two countries and the risk premium in oil has been low already before the latest price decline."

Flynn went on to warn that the impending U.S. Thanksgiving weekend has been one of "epic selloffs in oil in recent years caused by a multitude of reasons, whether it was a new strain of COVID or [U.S. president] Joe Biden tapping the [Strategic Petroleum Reserve], or just a crash for the sake of crashing; history tells us to be on guard."

Another upcoming event that may influence trading - a weekend meeting of the Organization of the Petroleum Exporting Countries (OPEC) - caused Bloomberg to state that "comments by Iran's representative that the group has little scope to reverse production cuts will reinforce expectations that the planned return of barrels will be delayed for a third time.'

In other oil news on Monday, Murray Auchincloss, chief executive at BP, told the Energy Intelligence forum in London that oil demand keeps rising on average by more or less 1 percent each year, and that his company predicts robust consumption for the next 5-10 years.

This came on the heels of Standard Chartered reporting that global oil demand hit an all-time high of 103.79 million barrels per day (bpd) in August, the third successive month in which a new record demand high has been set.