Oil Erases War-Driven Gains as Mideast Conflict Remains Limited

(Bloomberg) -- Oil erased its gains since the war in the Middle East began as Israel faces growing pressure to limit its bombardments to help hostage negotiations, keeping the conflict limited entering its fourth week.

West Texas Intermediate fell as much as 4.3%, with losses accelerating after crude slipped below technical support levels near $82 a barrel. Israel’s ground incursion into Gaza has so far been less extensive than some investors expected, and the risk premium that received a boost on Friday as the invasion commenced has since been wiped out.

“The selling accelerated once WTI broke Friday’s low, where a bunch of stops were undoubtedly resting,” said Fawad Razaqzada, a market analyst at City Index and Forex.com. “Still, there is a possibility that the bulls will try and defend key support sitting below the $82,” with the geopolitical risks and supply cuts from OPEC+ limiting declines.

Israeli Prime Minister Benjamin Netanyahu said in a televised speech Monday that his country won’t agree to any cease-fire with Hamas while adding that the nation also struck Iran-backed Hezbollah in response to attacks.

Global oil markets have been transfixed by the conflict because of its potential to spread beyond Israel and Gaza. The Middle East accounts for a third of global crude supplies, and concerns have mounted that an escalation of the war may lead to attacks on oil tankers, threats to maritime chokepoints and reduced exports from Iran.

Before crude futures began trading on Monday in Asia, both Tehran and Washington had warned that the conflict could still spread. Iran said Israel’s moves may “force everyone to take action.” The US, meanwhile, saw an “elevated risk” of regional spillover, according to National Security Advisor Jake Sullivan.

The World Bank warned that even a small disruption to crude supplies due to the escalation of the conflict could remove between 500,000 and 2 million barrels a day from global markets. If that happens, prices could rise to between $93 and $102 a barrel.

Elsewhere in markets, Saudi Arabia, which leads the OPEC+ alliance along with Russia, may refrain from hiking the selling price of its crude for Asian customers for the first time in six months after weak Chinese manufacturing data signaled that demand on the continent remains sluggish.

Loadings from Russian ports on the Black and Baltic Seas, including some batches originating in Belarus, are set at a total of 2.16 million tons for November, according to industry data seen by Bloomberg, as an export ban that roiled this month’s flows is reversed. That’s 56% above the October plan and Russia’s highest planned exports in three months.

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