Oil Drops As Traders Turn Blind Eye To Israeli Air Strikes, Focus On Peace Talks

Meanwhile, anticipation regarding the Fed switches from cuts back to hikes: File Image/Pixabay

Resurgent optimism over another round of peace talks between Israel and Hamas – with a blind eye apparently turned to a new round of lethal Israeli airstrikes – was said to be the reason why oil prices declined by more than $1 on Monday.

Brent settled down $1.10 at $88.40 per barrel, and West Texas Intermediate settled down $1.23 at $82.63 per barrel.

Although much was made of Hamas leaders arriving in Cairo for a fresh round of talks with mediators from Egypt and Qatar, Israel on Monday killed at least 40 Palestinians in its latest air strike, many in the southern Gaza city of Rafah, which world leaders warned Israel not to invade.

For its part, Washington urged Hamas to accept what it called an "extraordinarily generous" Israeli proposal for a truce.

John Kilduff, founding partner at Again Capital, said of Monday's trading, "You're seeing the geopolitical risk premium leak out again today because of no new escalation in the Israel-Hamas situation….a ceasefire or hostage negation release would take out even more risk premium."

Crude investors on Monday also reportedly priced in the chance that the U.S. Federal Reserve could hike interest rates yet again as inflation and a resilient labour market has all but eliminated long-standing hopes for cut. 

Akshay Singal, head of short-term interest rate trading at Citi, said, "If you look purely at the data and you did not have the rhetoric coming from central banks, we would be pricing in hikes, not cuts."

John Evans, analyst with PVM, theorized that growing stocks of heating oil and distillates against shrinking demand also affected oil prices on Monday along with similar conditions for natural gas, and this prompted Phil Flynn, senior market analyst at Price Futures Group Inc., to comment that the oil market and refined products are "coiling for a potential big move…..We think the risk of an upside move is more likely."

In other oil news on Monday, global insurance company International Group of P&I Clubs stated that 800 oil tankers it once insured recently became part of a shadow fleet that transports Russian oil being sold above the $60 price cap imposed by the G7 as punishment for Russia invading Ukraine.

The Group went on to note that it has become impossible for insurers to determine whether traders are adhering to the cap: the policy "appears increasingly unenforceable as more ships and associated services move into this parallel trade."