Oil holds drop as Middle East ceasefire talks erode risk premium

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil held its biggest drop in almost two weeks as discussions on a possible cease-fire in the Middle East reduced the risk premium for crude.

Brent crude traded above $88 a barrel after closing 1.2% lower on Monday, with West Texas Intermediate under $83. The gap between Israel and Hamas on an agreement to release hostages has narrowed in recent weeks and a deal was close, according to two people familiar with the deliberations.

Crude is set to eke out a fourth monthly gain, after surging to its highest since October in mid-April following Iran’s unprecedented attack on Israel. Conflicts in the Middle East and Ukraine, as well as OPEC+ supply curbs, are bolstering prices, although uncertainty over US monetary policy and high inventories in product markets including diesel are weighing on the outlook for demand.

US Secretary of State Antony Blinken, on an ongoing visit to the Middle East, urged leaders of the Hamas militant group — designated a terrorist organization by the US and the European Union — to quickly reach a decision on Israeli conditions for a cease-fire.

“We’ve already seen crude ease a bit on anticipation of a rapprochement, but prices may now remain rangebound until the outcome of the latest push for a truce is known,” said Vandana Hari, founder of Vanda Insights in Singapore. “In the event of a deal, I expect crude to quickly slide toward $80.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow