US Initiates Diplomatic Efforts to Ease Gaza Conflict, Oil Prices Dip

Amidst diplomatic maneuvers by the United States to broker peace between Israel and Hamas, oil prices experienced a decline. The move by the US aims to alleviate tensions in the Middle East region.

Brent crude saw a decrease, trading below $89 per barrel following a 2.5% increase the previous week. Similarly, West Texas Intermediate edged lower toward $83. US Secretary of State Antony Blinken is set to intensify efforts to facilitate a ceasefire in Gaza during his forthcoming visit to the region. Notably, the White House communicated that Israel has agreed to address US concerns and refrain from entering Rafah until consultations with American officials.

The surge in crude prices earlier this year was attributed to supply cuts by OPEC+ and escalating geopolitical tensions in the Middle East, a significant oil-producing region. However, evolving expectations regarding US monetary policy are dampening demand forecasts. Market participants are closely monitoring the Federal Reserve meeting scheduled for Wednesday to assess the likelihood of interest rate adjustments later this year.

Despite prevailing uncertainties, indicators such as timespreads continue to signal optimism. The disparity between the two closest Brent contracts remains over $1 per barrel in backwardation, although slightly lower than the peak observed last week. This figure marks a substantial increase compared to a month ago, reflecting ongoing bullish sentiment.

Warren Patterson, Head of Commodities Strategy at ING Groep NV in Singapore, noted a significant reduction in geopolitical risks. While anticipating a supply deficit in the current quarter, he highlighted uncertainties for the latter part of the year, largely contingent on OPEC+ policy decisions.

Over the weekend, tensions escalated further with Russia launching a heavy missile attack on Ukraine, targeting natural gas infrastructure and other strategic sites. In response, Kyiv retaliated by deploying drones to strike an oil refinery in the Krasnodar region. According to state-run news agency Tass, the Slavyansk plant experienced operational disruptions due to a fire following the attack.

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