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Pause in oil rebound due to reassessment of Israel-Hamas conflict’s impact; focus shifts to market realities.

Oil Rally Pauses as Traders Assess Impact of Israel-Hamas Conflict

Traders Hit Pause Button on Oil Rally

Oil trading has taken a breather following the escalation of the Israel-Hamas conflict. After a significant rally on Monday, oil prices dipped on Tuesday as traders sought to evaluate the impact of the ongoing tensions in the region. The lack of credible estimates regarding the potential disruption to oil production, trade, and shipping from the Middle East has contributed to the market’s cautious approach.

Oil Prices on the Decline

By noon hour in Asia on Tuesday, both US crude and UK peer Brent were trading in the negative, reversing the gains seen the previous day. The November delivery of New York-traded West Texas Intermediate (WTI) crude fell 0.4% to $86.02 per barrel. Meanwhile, London-traded Brent for the most-active December contract dropped 0.4% to $87.81 per barrel. These declines highlight the importance of preventing the oil market from getting ahead of itself, especially considering concerns about global inflation and stagnant European growth.

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Assessing the Impact of the Conflict

John Kilduff, a partner at New York energy hedge fund Again Capital, emphasized the need to evaluate the impact of the conflict on oil markets. While acknowledging the significance of the ongoing war, Kilduff questioned whether the increase in oil prices was solely due to the conflict or if it was also influenced by overall tensions in the region. He emphasized the importance of evidence regarding any meaningful reduction in oil supply, including potential clampdowns on oil exports from Iran, before crude prices rise further.

Uncertainty Surrounding Iranian Supplies

Traders are closely monitoring any potential changes in Iranian oil supply. Iran has been known to support Hamas, and any counter-engagement against Tehran by Israel or the United States could have implications for the oil trade. However, there has been no announcement regarding any adjustments to Iranian supply so far. The White House’s willingness to enforce sanctions against Iran could further impact the situation.

OPEC+ Production Cuts Continue

While there is uncertainty surrounding Iranian supplies, Saudi Energy Minister Abdulaziz bin Salman confirmed that production cuts by the OPEC+ alliance would continue. The alliance, led by Saudi Arabia and Russia, is withholding 1.3 million barrels per day, while the rest of the coalition contributes to a squeeze of another 2 million barrels or more. Abdulaziz emphasized that the cohesion of OPEC+ should not be challenged, expressing confidence in the alliance’s ability to handle any future challenges.

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Market Volatility and Recent Developments

Oil prices experienced significant fluctuations in recent weeks. Initially, prices surged due to aggressive OPEC+ production cuts, reaching more than one-year highs. However, macroeconomic factors, such as inflation concerns and stagnating European growth, as well as increased COVID-19 cases, led to a decline in oil prices. This volatility underscores the importance of carefully assessing market dynamics and avoiding excessive speculation.

Overall, the oil market remains sensitive to geopolitical risks, but it is crucial to evaluate the actual impact on supply and demand before making further predictions about crude prices.

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