Oil Plunges 2% on Easing Middle East Tensions

8 Apr 2024 , 11:12 AM

Monday saw a drop in oil prices of more than $1 a barrel, with Brent falling below $90, as Middle East tensions decreased following Israel’s withdrawal of further troops from southern Gaza and its commitment to new negotiations on a possible six-month ceasefire.

Brent crude futures had dropped $1.70, or 1.9%, to $89.47 per barrel.

The price of a barrel of U.S. West Texas Intermediate crude was $85.29, down $1.62 or 1.9%.

In an effort to defuse tensions in the Middle East that caused oil prices to spike by more than 4% last week due to fears of supply interruption, Israel and Hamas dispatched delegations to Egypt for new negotiations on a possible ceasefire in advance of the Eid holidays.

Israeli Defence Minister Yoav Gallant declared on Sunday that his country is prepared to deal with any situation that can occur with Iran, following Tehran’s promise to take revenge for the April 1 killings of Iranian generals.

Following a tightening heavy oil supply, Saudi Arabia, the world’s largest oil exporter, increased official selling prices for all crude grades to Asia in May, as anticipated.

At least one contractor was killed on Saturday when fire broke out on an offshore platform run by Pemex, the national oil company of Mexico. This follows Pemex’s request in April for its trading unit to halt crude shipments of up to 436,000 barrels per day.

However, in its base case scenario, which assumes existing strong demand, no additional geopolitical shocks to the oil supply, and that rising spare capacity will push OPEC+ to raise output in the third quarter, Goldman Sachs analysts estimate Brent to continue below $100 per barrel.

According to a data released by Baker Hughes on Friday, the number of oil rigs in the US increased by two to 508 last week while the number of gas rigs decreased by two to 110, the lowest since January 2022.

The better-than-expected U.S. employment data on Friday suggests that the economy was doing well at the end of the first quarter and could postpone this year’s expected interest rate cuts from the Federal Reserve.

Strong U.S. economic data and a healthy job market may lead the Fed to consider rate reduction, according to independent economist Tina Teng of Auckland.

In order to determine the economic health of the two countries that consume the most oil globally and to get additional hints about when the Fed may cut interest rates, investors will be closely examining consumer price index data from the United States and China that is expected later this week.

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