Oil futures pulled back Monday, with the global benchmark sliding back below $90 a barrel, after a ground incursion into the Gaza Strip by Israeli forces appeared to proceed at a cautious pace, helping to soothe worries over a broadening of the conflict.
Price action
-
West Texas Intermediate crude
CL00,
-1.29%
for December delivery
CL.1,
-1.29% CLZ23,
-1.29%
fell 93 cents, or 1.1%, to $84.61 a barrel on the New York Mercantile Exchange. -
December Brent crude
BRNZ23,
-1.03% ,
the global benchmark, was down 68 cents, or 0.9%, at $89.80 a barrel on ICE Futures Europe.
Market drivers
Israeli tanks and infantry advanced to the outskirts of Gaza City on Monday and severed a main road connecting the northern part of the Gaza Strip with the south, The Wall Street Journal reported, while the U.S. and other Western countries pressured Tel Aviv to minimize civilian casualties.
“With weekend events starting to see further modest Gaza incursions the hope is that this incremental approach will ratchet up the pressure on Hamas, while not provoking another front on Israel’s northern border with Lebanon and Hezbollah,” Michael Hewson, chief market analyst at CMC Markets, said in a note.
Oil futures jumped nearly 3% on Friday, but suffered weekly declines, eroding the modest risk premium priced into the market since the Oct. 7 attack on southern Israel by Hamas. Crude hasn’t challenged the 2023 highs set in late September.
Read: 4 reasons why oil prices have only seen a modest Middle East risk premium
Analysts said traders will remain sensitive to developments, in particular any sign the conflict could result in direct confrontations with Iran.
“If Iran’s involvement were to lead to a fall in the country’s oil exports, this could pressure an already constrained market — with a 500,000 barrel a day reduction potentially taking Brent crude prices to between $100 and $110, from around $89 at present,” strategists at UBS said in a Monday note.
“In addition, a broadening of the conflict across the region could
cause prices to spike as high as $120/bbl, in our view,” they said.
The UBS strategists said their base case is that a broader war should be avoided, but saw the case for added exposure to Treasurys, while positions in gold and oil could also serve as hedges against continued volatility.
Read More: Oil slips back below $90 a barrel as supply worries from Israel-Hamas war ease