Oil Retreats From Five-Month Peak Amid Israel’s Gaza Troop Reduction

Oil prices retreated from a five-month high as Israel announced a partial withdrawal of troops from Gaza.

The decision, coupled with looming market reports, has injected a degree of uncertainty into the oil market and overshadowed the recent supply shocks.

Brent oil, against which Nigerian oil is priced, declined as much as 2.6% before paring some losses to trade below the $90 per barrel threshold.

Similarly, West Texas Intermediate (WTI) slipped below $86 a barrel.

The recent surge in oil prices had been fueled by mounting geopolitical tensions and supply disruptions, with speculation rife over the possibility of the global benchmark breaching triple figures.

Israel’s announcement on Sunday regarding the partial withdrawal of troops from southern Gaza has prompted market observers to reassess the geopolitical landscape.

While the move is aimed at allowing forces to recuperate and plan for future operations, including a potential offensive on Rafah, concerns persist over the broader implications for regional stability.

Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd. in Singapore, emphasized that despite Israel’s troop adjustment, the underlying threats of conflict involving Iran remain pertinent.

Varathan highlighted the continued potential for oil price volatility, attributing much of it to geopolitical tensions exacerbating supply shortfalls elsewhere in the market.

Despite the retreat from recent highs, the broader outlook for oil remains bullish, supported by a range of factors indicating an upward trend in prices.

Strong timespreads, a recovery in volatility, and increased bullish positioning by funds underscore the underlying optimism in the market.

Furthermore, bullish oil call options continue to trade at a premium to bearish puts, signaling confidence among investors regarding future price movements.

However, technical factors present short-term headwinds for oil prices. Brent surged into overbought territory on the 14-day relative strength index, suggesting a potential for correction following the rapid rally.

Market participants are now eagerly awaiting a series of crucial reports that are poised to provide insights into supply and demand dynamics.

The US Energy Information Administration’s Short-Term Energy Outlook, scheduled for release on Tuesday, will be followed by reports from OPEC and the International Energy Agency later in the week.

These reports will play a pivotal role in shaping the market sentiment and outlook for global oil balances. Amid ongoing supply outages and geopolitical tensions, market watchers will closely scrutinize the data and commentary for clues regarding the trajectory of oil prices in the coming weeks.