Oil prices fell as the United States strengthened its diplomatic efforts to contain the crisis in Gaza, as US President Joe Biden is scheduled to visit Israel this week as part of his administration’s attempts to prevent the outbreak of a large-scale regional conflict.
The price of West Texas Intermediate crude fell to approximately $86 per barrel after closing down more than 1% on Monday. Biden's trip to Israel begins on Wednesday to show his support after the October 7 attacks launched by Hamas that ignited the conflict. Meanwhile, Israel is still planning a ground attack on Gaza.
The sudden crisis in the Middle East has sparked significant volatility in the crude oil market due to concerns about the risk of it spreading beyond Israel and Gaza, which could jeopardize crude oil flows from major producers.
The dangers of expanding the scope of the war
For its part, Iran - which supports Hamas - warned that expanding the scope of the war was almost becoming an inevitable option. Tehran also supports the Hezbollah armed group in southern Lebanon.
How is the global oil market affected by the conflict between Israel and Palestine?
“Oil prices remaining within the current range in which they are moving is largely dependent on the conflict not spilling over on a broader scale,” said Vishnu Varathan, head of Asia economics and strategy at Mizuho Bank in Singapore. He added that although his organization does not expect the price of crude oil to reach between $100 and $120 per barrel, the risk of reaching this price is increasing day after day.
Biden's visit to the Middle East - which will also include a short trip to Jordan - comes following diplomatic meetings held by US Secretary of State Anthony Blinken in the region. Blinken said that the US President’s message is directed to any actor, whether state or non-state, that tries to exploit the crisis to open a new front... Do not do that.
Other events under the oil market microscope
Outside the Middle East, crude oil traders will also focus on events taking place in Barbados, where Venezuela's government may sign an agreement with the opposition later on Tuesday. If the agreement has already been concluded; This may pave the way for easing US sanctions imposed on the country, which could boost oil exports.
Will oil prices rise if the attack on Gaza lasts?
Oil spreads suggest that market tightening may begin to ease. The spot spread for Brent crude (i.e. the margin between its two closest contracts) was about $1.38 per barrel in the case of backorder, and although this still forms an upward curve, it is less than the difference of $1.45 per barrel that it reached on Friday, October 6, the day before the Hamas attack. .
