(Bloomberg) -- Oil dropped as oversupply concerns overshadowed the risks from Israel’s potential retaliatory strike on Iran.
West Texas Intermediate fell by almost 1% to settle near $70 a barrel, while global benchmark Brent settled near $74. Timespreads are pointing to an amply supplied market, with the gap between the two nearest contracts for WTI narrowing to 34 cents a barrel. That’s down from $1.79 in August.
“In the absence of new geopolitical developments, the path of least resistance for crude oil appears to be lower,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “Demand concerns are driving the narrowing of spreads, while a generally bearish outlook for 2025 is keeping potential buyers on the sidelines.”
Reports that negotiators between Israel and Hamas will meet in the coming days damped expectations of further escalation in the Middle East. The US is exploring different options to restart talks between the parties and secure the release of hostages held by the Palestinian militant group, according to Secretary of State Antony Blinken.
That signals a shift in sentiment from recent weeks, when the possibility of Israeli retaliation prompted a deluge of activity in oil derivatives markets. Traders hold a record number of Brent options, and contracts that hedge against a spike in prices are the most expensive relative to bearish ones since shortly after Russia’s invasion of Ukraine in 2022.
Oil has seen volatile trading this month as traders assess risks to output in the Middle East, which pumps about a third of global supplies, as well as a mixed picture on demand. While crude consumption has faltered in top importer China, even as authorities add stimulus, there have been stronger signals from the US, with refinery processing running at a six-year seasonal high. Investors are also counting down to next month’s close-fought US election.
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(Updates status of cease-fire negotations in fourth paragraph. A previous version corrected direction of spread move in third paragraph)
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