Oil drops after Israel’s Gaza ground offensive starts cautiously
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Global crude benchmark Brent dropped below US$90 a barrel, after rising by almost 3 per cent on Friday.
PHOTO: REUTERS
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Singapore – Oil fell after Israel committed forces to Gaza with a more cautious approach than initially vowed, bolstering speculation the fighting may remain contained despite rhetoric from Iran.
Global crude benchmark Brent dropped below US$90 a barrel, after rising by almost 3 per cent on Friday as Israel stepped up operations, while West Texas Intermediate (WTI) fell towards US$84.
While Israel has sent troops and tanks into the northern Gaza Strip in retaliation to the Oct 7 attack,
Oil markets have been transfixed by the conflict in Gaza on concerns that it could spread beyond the enclave and Israel, dragging in other states and groups such as Iran.
The region accounts for a third of global crude supplies, and there are fears that an escalation of the war could lead to attacks on oil tankers, threats to maritime choke points and a reduction in exports from Tehran.
Before crude futures trading on Monday in Asia, both Tehran and Washington had warned that the conflict could still spread.
Iran said the war may “force everyone to take action”.
The United States, meanwhile, saw an “elevated risk” of spillover, according to National Security Adviser Jake Sullivan.
“The weekend showed the armed conflict remains limited to Israel and Gaza – in that light, crude looked overbought,” said Ms Vandana Hari, founder of consultancy Vanda Insights.
Prices will “likely continue sliding until the next risk event”, she added.
Iran is the main backer of Hamas, which has been designated as a terrorist group by the United States and the European Union.
Tehran also supports Hezbollah in southern Lebanon, which has forces positioned along Israel’s northern border.
Away from the Middle East, there have been mixed signs about the state of the physical market.
In the US, stockpiles of oil held at the key storage hub at Cushing, Oklahoma, remain near the lowest level since 2014, but an unprecedented glut of petrol has built up along the Gulf Coast.
Some market metrics point to less tight conditions.
WTI’s prompt spread – the difference between its two nearest contracts – was 74 cents a barrel in backwardation.
While that is still a bullish pattern, the figure is both near the lows seen last week, and less than the spread before the conflict erupted. BLOOMBERG
