Brent in limbo as ceasefire talks offset tight supply concerns

The front-month ICE Brent contract shed $0.39/bbl on the day from Friday, to trade at $90.44/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

In recent weeks, Brent futures have remained high following an increase in geopolitical tensions.

The escalating tension in Gaza and the spillover of the conflict in the Red Sea, along with several Ukrainian drone attacks on Russian energy facilities, have fueled concerns about tight oil supply in the global oil market.

Brent gained more support after OPEC+ decided to maintain its output policy and supply cuts through the end of June this year.

“Crude oil held on recent gains as rising tensions in the Middle East raise concerns of supply disruptions,” ANZ Bank’s senior commodity strategist Daniel Hynes commented.

Oil prices surged over the weekend after Iran vowed to counterattack Israel for striking its embassy in Damascus, Syria.

“Reports swirling about a possible attack by Iran on Israeli soil would be a definite escalation of the proxy war between Iran and Israel,” Price Futures Group’s senior market analyst Phil Flynn remarked. “That put the [oil] market in risk aversion mode causing stocks to sell off, oil to rally as people prepared for what could be a major price spike if this confrontation happens,” he added.

Downward pressure:

Some downward pressures influencing Brent futures stem from the possible withdrawal of Israeli troops from southern Gaza ahead of the Muslim religious holiday of Eid al-Fitr, as reported by Reuters.

Israel and Hamas have reportedly sent negotiators to Egypt to discuss a possible ceasefire agreement to end the ongoing conflict, which entered its sixth month yesterday. Both parties are expected to discuss the release of about 130 Israeli hostages from Hamas bases and the subsequent withdrawal of Israeli Defense Forces (IDF) from Gaza.

Israel is facing severe pressure for an immediate ceasefire agreement from several world leaders, including US President Joe Biden, following the wrongful bombing of seven human aid workers in Gaza last week.

Analysts believe that a possible ceasefire in the Gaza Strip could remove supply-side risk premiums from the oil market and cap Brent’s price gains.

“Crude futures dived when markets reopened for trade after the weekend following an easing of tensions around the Gaza war over the weekend,” stated Vandana Hari, founder and market analyst at VANDA Insights. "Two key developments over the weekend signaled a potential breakthrough in six months of Israeli’s deadly onslaught in Gaza,” she added.

By Tuhin Roy

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