Oil prices slipped on Monday as the United States worked to broker a peace deal between Israel and Hamas, aiming to reduce geopolitical tensions in the Middle East. Brent crude traded below $89 a barrel, while West Texas Intermediate dropped towards $83 after gaining 2.5% last week.
US Secretary of State Antony Blinken is set to visit the region to step up efforts to secure a truce in Gaza. The White House announced that Israel has agreed to hold off on invading Rafah until meeting with American officials to discuss their concerns.
The rise in oil prices this year has been fueled by OPEC+ supply cuts and heightened tensions in the Middle East, a region that produces about a third of the world’s oil. However, shifting expectations for US monetary policy are impacting the demand outlook, with traders closely watching the Federal Reserve meeting on Wednesday for clues on potential rate cuts.
Despite the uncertain outlook, timespreads are still signaling bullishness in the market. The gap between the two nearest Brent contracts remains over $1 a barrel in backwardation, indicating strong demand for near-term deliveries.
Warren Patterson, head of commodities strategy for ING Groep NV in Singapore, noted that geopolitical risks have eased considerably, but the outlook for the second half of the year remains unclear and largely depends on OPEC+ policy decisions.
In other news, Russia launched a heavy missile attack on Ukraine over the weekend, targeting natural gas infrastructure and other facilities. In response, Kyiv struck back with drones targeting an oil refinery in the Krasnodar region, causing a fire and partial suspension of operations at the Slavyansk plant, according to state-run news agency Tass.