Oil Settles 1% Lower as Mideast Ceasefire Talks Alleviate Supply Disruption Worries
By Georgina McCartney
HOUSTON (Reuters) – Oil prices closed lower on Friday as the increasing likelihood of a ceasefire agreement in Gaza overshadowed robust summer fuel demand and possible supply disruptions from hurricanes in the Gulf of Mexico.
Brent crude futures fell by 89 cents, or 1.02%, settling at $86.54 a barrel, after reaching their highest levels since April earlier in the day. Meanwhile, U.S. West Texas Intermediate (WTI) futures ended at $83.16 a barrel, down 72 cents, or 0.9%.
For the week, Brent increased by 0.4%, while WTI futures gained 2.1%.
The head of Israel’s Mossad recently returned from Doha following initial discussions with mediators about a potential Gaza ceasefire and hostage release, and further negotiations are set to continue next week, according to a statement from Prime Minister Benjamin Netanyahu’s office. The office acknowledged that differences still exist between the negotiating parties.
“Obviously a breakthrough there would help calm the waters,” said John Kilduff, a partner at Again Capital. A resolution to the conflict in the Middle East could lower the risk premium associated with oil from the region, putting downward pressure on prices.
WTI was unable to settle on Thursday due to the Independence Day holiday, leading to lighter trading volumes. However, prices have increased this week, driven by expectations of strong oil demand during the summer in the U.S.
"The last couple of days represent the peak of the drive season, in terms of demand and prices continue to creep higher," commented Tim Snyder, an economist at Matador Economics. He added this rise is fueled by stronger consumer demand and the impacts of Hurricane Beryl.
The U.S. Energy Information Administration (EIA) reported a much larger-than-anticipated inventory draw of 12.2 million barrels last week, significantly exceeding analyst expectations of a 700,000 barrel decrease.
On the supply side, Hurricane Beryl, classified as a Category 2 storm, has made landfall in Mexico after causing fatalities and damage in the Caribbean. Although Mexico’s main oil platforms are unlikely to be affected, oil operations in U.S. waters may face disruptions if the hurricane continues on its current trajectory.
Additionally, there is growing speculation that U.S. interest rate cuts could be on the horizon, which might enhance oil demand. Recent employment data indicated a slight slowdown in job growth in June, alongside a rise in the unemployment rate to 4.1%, the highest level in over two and a half years. This shift in the labor market could prompt a rate cut discussion in upcoming meetings.
“This morning’s employment data shows that there are some cracks in the labor market, that could spur on a rate cut even this month,” Kilduff remarked. Lower interest rates could stimulate economic activity and lead to increased demand for oil.