Isabel Wang and William Watts, MarketWatch

NEW YORK
EnergiesNet.com 10 20 2023

Oil futures settled lower on Monday, logging their biggest daily decline since early October as traders monitored diplomatic efforts aimed at ensuring the Israel-Hamas war doesn’t spiral into a wider regional conflict.

Price action

• West Texas Intermediate crude for December delivery CL00, -2.58% CL.1, -2.58% CLZ23, -2.58% fell $2.59, or 2.9%, to settle at $85.49 a barrel on the New York Mercantile Exchange. It was the largest one-day percentage decline since Oct. 4 for the U.S. benchmark, according to Dow Jones Market Data.
  
  
• December Brent crude BRN00, 0.28% BRNZ23, 0.28%, the global benchmark, was off $2.33, or 2.5%, to end at $89.83 a barrel on ICE Futures Europe, also booking its biggest daily percentage drop since Oct. 4.
  
  
• November gasoline  RBX23, -2.03% lost 4.5 cents, or 1.9%, to finish at $2.3285 a gallon, snapping a six-session winning streak.
  
  
• November heating oil  HOX23, -1.96%  declined by 6.1 cents, or 1.9% to settle at $3.0955 per gallon.
  
  
• November natural gas  NGX23, 0.55%  rose 2.7 cents, or 0.9%, to end at $2.926 per million British thermal units, snapping an eight-session losing streak, according to Dow Jones Market Data.

Market drivers

Oil futures have rallied since Oct. 7, when the Palestinian militant group Hamas launched surprise cross-border raids on Israel from Gaza, pushing the region to the precipice of a dangerous abyss.

Israel intensified an aerial bombing campaign of the Gaza Strip, where the death toll has topped more than 4,600 over the past two weeks, according to the Wall Street Journal. Israel has yet to mount a widely anticipated ground incursion into the enclave, as the Biden administration has advised the country to delay the invasion to allow for more time for hostage negotiations and humanitarian aid.

On Saturday, 20 trucks entered Gaza in the first shipment of aid into the territory, while Israel allowed a second convoy of 15 trucks into Gaza on Sunday.

See: Israel strikes Gaza, Syria and West Bank as war against Hamas threatens to ignite other fronts

The de-escalation efforts follow a strong week for oil, with both Brent and WTI up more than 1%. Last week, a missile strike on a Gaza hospital killed hundreds of Palestinians just before U.S. President Joe Biden visited the Middle East. A summit between Palestinian, U.S., Jordanian and Egyptian leaders was canceled shortly before Biden departed for Israel.

Analysts and traders said they expect price action to remain volatile, with fears of a potential spillover that could involve Iran unlikely to be fully dispelled. A conflict that involves Iran would likely see renewed scrutiny of that country’s crude-oil exports, which experts said have likely climbed back to around 2 million barrels a day after being decimated by the re-imposition of sanctions by the Trump administration in 2018.

A worst-case scenario — Iran closing the Strait of Hormuz, a crucial oil-transportation chokepoint — could have an even larger effect on crude prices, analysts have warned.

“Supply-side worries drove the recent rally in crude prices, with many fearing that a protracted war, which could spill over across the Middle East, would lead to a reduction of supply in the global oil market,” Ricardo Evangelista, senior analyst at ActivTrades, said in a note.

“Recent diplomatic developments helped ease tensions, bringing some hope of a de-escalation in the war. However, the situation remains volatile, and oil prices will likely remain supported and dominated by upside risk,” he wrote.

See: Here’s what the Israel-Hamas war has done to U.S. gasoline and diesel prices

Elsewhere, the Biden administration last week announced the suspension of sanctions on OPEC member Venezuela, in response to a deal reached between Venezuela’s government and its U.S.-backed opposition parties regarding Venezuela’s 2024 election.

However, any headway made regarding the South American producer would not bring its barrels back to market immediately, StoneX’s Kansas City energy team, led by Alex Hodes, said in a Monday note.

marketwatch.com 10 23 2023