Oil prices fell sharply on Tuesday, dropping over 4% following reports of a possible ceasefire between Hezbollah and Israel. However, concerns about a potential attack on Iranian oil infrastructure provided some support for the market.
Brent crude futures ended the day down $3.75, or 4.63%, settling at $77.18 a barrel. Similarly, U.S. West Texas Intermediate futures declined by $3.57, also a 4.63% drop, finishing at $73.57 a barrel. During the trading session, both benchmarks fell more than $4 a barrel at their lowest points.
“We are very reliant on headlines right now,” said John Kilduff, a partner at Again Capital LLC. “This morning, we heard about the possible ceasefire. Then, we received indications that energy targets are still being focused on.”
Phil Flynn, a senior analyst at Price Futures Group, commented, “The fact that Hezbollah is open to a ceasefire is a headline that people will react to. We can expect a lot of volatility in response to this conflict.”
On Monday, Brent prices had briefly surged above $80 per barrel for the first time since August, after a more than 3% daily increase. This spike followed the largest weekly gain in over a year, with prices rising about 8% due to growing fears of escalating conflict in the Middle East.
Hezbollah has indicated it is willing to negotiate a ceasefire after Israeli forces intensified their actions against the Iran-backed group with new incursions into southern Lebanon. Israeli Defense Minister Yoav Gallant stated that it appears the replacement for slain Hezbollah leader Sayyed Hassan Nasrallah has also been eliminated.
Late Tuesday, Israel’s military advised residents to avoid certain buildings in the southern suburbs of Beirut.
The surge in oil prices began after Iran launched a missile attack on Israel on October 1. Israel has vowed to retaliate and is weighing its response options.
Some analysts believe an attack on Iranian oil infrastructure is unlikely. They caution that oil prices could face significant downward pressure if Israel targets other areas.
In the U.S., Hurricane Milton intensified into a Category 5 storm as it approached Florida, forcing at least one oil and gas platform in the Gulf of Mexico to shut down on Monday.
According to sources citing American Petroleum Institute figures, U.S. crude oil stocks rose by nearly 11 million barrels last week, while fuel stockpiles decreased. Specifically, crude inventories increased by 10.96 million barrels for the week ending October 4, while gasoline inventories fell by 557,000 barrels and distillate stocks dropped by 2.60 million barrels.
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