Oil retreats as supply fallout from Israel war contained so far

Oil fell after an early-week surge as the impact on flows from the Israel-Hamas war remained contained.

West Texas Intermediate dropped near $85 a barrel. A war-risk premium returned to the market on Monday following Hamas’s attack on Israel over the weekend, sparking concerns that the conflict will lead to wider instability in the Middle East. So far, there hasn’t been meaningful supply disruption in the region, and OPEC+ leader Saudi Arabia on Tuesday reiterated support for efforts by the group to balance oil markets.

Crude prices also faced pressure from wider markets on Wednesday, after stronger-than-expected US producer price increases bolstered speculation that interest rates will remain higher for longer. 

Oil traders have been watching carefully for spillover from the conflict that could endanger crude flows. The war adds another complicated dimension to global crude trading after prices surged in the third quarter as OPEC+ choked off supplies to tighten the market, then gave up some gains as demand concerns flared up.

“As so far there has not been any supply disruption, the geopolitical premium is fading again,” said Giovanni Staunovo, a commodity analyst at UBS Group AG.

The US and Venezuela, meanwhile, are close to reaching an understanding that would bring limited sanctions relief in exchange for steps to ensure fair elections, according to people familiar with the matter. As part of the informal deal, the US would be willing to lift some oil and banking sanctions.