Oil prices drop due to increased efforts to reduce Middle East conflict

October 23, 2023 (MLN): Global oil prices started the week lower due to increased diplomatic initiatives over the weekend aimed at reducing conflicts between Israel and Hamas.

Brent crude is currently trading at $90.34 per barrel, down by 0.97% on the day.

While West Texas Intermediate crude (WTI) is trading at $87.02 per barrel, down by 1.17% on the day.

It is important to mention that oil prices continued their upward trajectory last week, recording two consecutive weekly gains due to the ongoing conflict in the Middle East.

Both the benchmarks, Brent Crude and WTI surged by 1.44% and 1.86% to close the week at $91.224 and $88.05 respectively.

Aid convoys started to arrive in the Gaza Strip from Egypt over the weekend, as Arab leaders and foreign ministers gathered for a summit in Cairo which was unable to yield a joint statement, as Reuters reported.

"There is some relief in the oil market that Israel is holding off on a planned ground incursion of northern Gaza to negotiate a release of hostages, which opens up a window for diplomacy," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

"A ground siege is seen as a potential trigger for widening the Israel-Hamas conflict into the Middle East region, the factor behind crude's risk premium over the past fortnight," Hari said.

Analysts at ANZ Research echoed the sentiment, adding in a client note this provided hope that the Israel-Hamas war would not spread across the Middle East and disrupt supplies.

But, in the latest developments, Israel bombarded Gaza and its aircraft struck Lebanon. Asian shares drifted lower on Monday.

To ease oil supply pressure - already tight due to output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and affiliates including Russia - the U.S. suspended sanctions on OPEC member Venezuela after a Venezuelan government deal with the opposition.

U.S. President Joe Biden, who visited Israel last week, had called on Sunday with the leaders of Canada, France, Britain, Germany, and Italy, after speaking with Israeli Prime Minister Benjamin Netanyahu and Pope Francis.

Leaders of France and the Netherlands will visit Israel this week in search of a solution for the conflict which ignited on October 07 after a Hamas attack.

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