Israeli Defence Minister Yoav Gallant (L) visit the troops participating in Gaza Strip and made a situation assessment with the commanders in Rafah, Gaza on March 13, 2024.
Ariel Hermoni | Anadolu | Getty Images
Crude oil futures fell for a second day Tuesday as the recent rally paused while traders took stock of where the conflict in Middle East was heading.
The West Texas Intermediate contract for May delivery fell $1.20, or 1.39%, to settle at $85.23 a barrel. The June Brent futures contract lost 96 cents, or 1.06%, to settle at $89.42 a barrel.
“This is a day of profit taking for traders who have enjoyed a handsome gain year to date, and want to lock in the gains and stay on the sidelines,” said Manish Raj, managing director of Velandera Energy Partners.
WTI has gained about 19% this year while Brent is up 16% as geopolitical tensions mount against the backdrop of rising demand and OPEC+ production cuts that are expected to push the market into a supply deficit this year. Barclays expects a 400,000 barrel per day deficit for 2024.
Crude prices settled lower Monday after Israel reduced its forces in Gaza over the weekend, suggesting the country’s military campaign might transition to a more limited phase.
But Stefano Pascale, head of equity derivatives strategy at Barclays, said there are still upside risks to oil prices, particularly from geopolitical tensions in the Middle East, despite the recent rally taking a pause.
“Further melt-up may reawaken inflationary concerns, derailing the equity rally,” Pascale told clients in a note Tuesday. Investors will be closely watching the March consumer price index reading on Wednesday to see how oil prices have impacted headline inflation.
Oil rallied more than 4% last week as Israel and Iran teetered on the brink of a direct confrontation after Tehran’s consulate in Damascus, Syria, was destroyed in a missile attack.
Israel has not claimed responsibility for the strike. The U.S. has assessed that Israel is responsible.
“The conflicts in the Middle East increase the risk of a wider regional conflict, which could have implications for oil supply, but it is important to note that Iran has, so far, refrained from getting directly involved in the conflict and OPEC spare capacity is currently elevated,” Amarpreet Singh, energy analyst at Barclays, told clients Friday.
Raj said “traders are discounting the possibility of a direct armed conflict between Israel and Iran as the latter seems to be preparing for a toned-down retaliation through its proxies.”
Israel Prime Minister Benjamin Netanyahu vowed late Monday to press on with an offensive against the southern city of Rafah on the Egyptian border, saying a date had been set for the operation.
“This victory requires entry into Rafah and the elimination of the terrorist battalions there. It will happen —there is a date,” Netanyahu said in an address.
The U.S has warned Israel against launching an offensive against Rafah, where more than 1 million Palestinians who have fled fighting elsewhere in Gaza are taking refuge.
Cease-fire negotiations also appeared deadlocked in Cairo, with Hamas saying Israel’s proposal did not meet Palestinian demands.
