Crude Oil Down as Diplomatic Efforts in Middle East Calm Tension

By Adedapo Adesanya 

Crude oil depreciated by over 2 per cent on Monday as diplomatic efforts in the Middle East intensified in an attempt to contain the conflict between Israel and Hamas.

Brent crude settled down by $2.33 or 2.5 per cent to trade at $89.83 a barrel while the US West Texas Intermediate (WTI) crude lost $2.59 or 2.9 per cent to close at $85.49 a barrel.

The European Union (EU) leaders will call for a humanitarian pause in the conflict this week so that aid can reach Palestinians in Gaza, with the leaders of France and the Netherlands set to visit Israel this week.

Also, aid convoys started to arrive in the Gaza Strip from Egypt over the weekend.

The armed wing of the Palestinian Hamas militant group said on Monday it had released two female Israeli civilian captives in response to Egypt and Qatar’s mediation efforts.

Regardless, Israel continued its bombardment of Gaza on Monday after launching air strikes over southern Lebanon overnight.

Both oil benchmarks recorded week-on-week gains for the last two weeks, on the possibility of supply disruption in the Middle East.

The diplomatic efforts eased investor concerns about potential supply disruptions.

The Middle East in the last week has become the core focus of the oil market because of fears of a region-wide conflict that would likely involve a disruption of oil supplies.

However, at the moment, it is evident that supply disruptions may be less likely now.

Also weakening prices, US President Joe Biden last week announced the suspension of sanctions on Venezuela, a member of the Organisation of the Petroleum Exporting Countries (OPEC) after the current Venezuelan government agreed to a deal with the opposition.

The development could bring exports back to the market, but the extent to which this could mitigate the impact of supply risks in the Middle East is unclear.

Analysts said the move is expected to add 200-300,000 barrels per day of Venezuelan crude to the global export market. However, this has not much impact as it is not expected immediately.

The broad relaxation of the sanctions imposed since 2019 following an election that the Donald Trump-led US considered a sham will allow some Venezuelan crude to flow to customers previously barred from transactions.