The oil prices fell to their lowest level in over three months on Monday, with hedge funds betting the conflict won’t draw in oil-rich countries in the region.
Brent crude, which is the international benchmark for oil, fell 4.2 percent to $81.61 per barrel. This was a drop from levels last seen at the end of July, and wiped out the rally started in early October. The US benchmark West Texas Intermediate dropped 4.3 percent to $77.37 per barrel.
Hamas’s attack and Israel’s declaration of war following it sparked fears that a wider conflict could affect the Middle East’s gas and oil supplies. Prices rose by more than 10% to nearly $93 per barrel at the end of last month.
But these fears have mostly subsided, as traders believe that there is no imminent threat of the conflict escalating or involving countries like Iran.
The prospect of conflict spreading into the oil-rich Middle East has been lowered to near zero, according to Ole Hansen of Saxo Bank, who is the head of commodity strategy.
Hedge funds also sell off long positions they took up after the start of the war. According to US Commodity Futures Trading Commission data, in the week ending October 31, hedge funds sold the equivalent of 70mn barrels worth of crude oil between Brent and WTI – the two benchmarks for the market.
Helima Croft said that traders were “discounting” the possibility of escalation in the Middle East, and instead focusing on the lackluster economic data coming from the US, Europe, and China.
Croft said that “many” of those who overestimated the disruption in oil supply following Russia’s invasion Ukraine last year were burned. “They want to see the risk materialize before they begin pricing it in,” said Croft. . . “I think that there are still important risks, but the market participants have chosen to move on.”
After a speech from Hassan Nasrallah (leader of Hizbollah), the oil prices fell sharply. However, Nasrallah did not call for an escalation in the conflict. Hansen stated that Nasrallah’s speech “took away the sting of the war premium”.
Oil prices, which had risen above $100 per barrel in the year prior to Moscow’s invasion of Ukraine in full force, have been under pressure since 2023. However, they have seen some support over recent months, after Saudi Arabia, Russia, and Opec+ cut production and exports.
Brent crude and WTI prices remain higher than before Saudi Arabia’s first voluntary reduction in production, which took place in July.
Saudi Aramco reported higher third-quarter profits compared to the previous three-month time period. Higher prices outweighed lower sales volumes.
Bjarne Shieldrop is the chief commodities analyst for SEB. He said that markets would be watching Saudi Arabia and Russia’s actions if prices fell below $80 per barrel – around the point where budgets of both governments start to become tight.
He said that if the price of oil drops below $80, Saudi Arabia and Russia would intervene in order to build confidence and to say “we are ready to defend our price”.