Oil prices fall amid diplomatic efforts to contain Israel-Gaza war

The US has reportedly advised Prime Minister Benjamin Netanyahu's government to delay its invasion of the blockaded enclave to allow the release of more hostages

Palestinians at a UN school in Khan Younis, in southern Gaza, where they have sought shelter amid an Israeli bombardment. EPA

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Oil prices fell on Monday following a weekly gain as diplomatic efforts to contain the Israel-Gaza war continued amid concerns of an escalation in the oil-producing region.

Brent, the benchmark for two thirds of the world’s oil, was trading 2.28 per cent lower at $90.06 a barrel at 9.34pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 2.63 per cent at $85.76 a barrel.

"Risk sentiment is improved compared to Friday as tensions in the Middle East didn’t escalate as much as feared during the weekend," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"But tensions remain extremely high and risk of serious escalation prevails as Israel stepped up air raids in Gaza, and Hezbollah could drag Lebanon into war," she said.

Brent has risen by about 8 per cent since Hamas, which rules Gaza, launched an unprecedented assault on Israel on October 7.

Israel retaliated with air strikes on Gaza, where the death toll has risen to more than 4,500. Prime Minister Benjamin Netanyahu's government is also gearing up for a ground offensive in the Palestinian enclave, home to 2.1 million people.

The US advised Israel to delay its invasion of Gaza to allow for the release of more hostages held by Hamas and ensure that more humanitarian aid reaches Palestinians, according to media reports on Monday.

A second convoy of 14 aid lorries entered the besieged enclave from Egypt through the Rafah crossing on Sunday night, Juliette Touma, UN Relief and Works Agency spokeswoman, told Reuters.

US Secretary of State Antony Blinken on Sunday said there was a “likelihood” of Iran and its proxies escalating violence in the broader Middle East.

“We don't want escalation. If we don't want to see a second or third front develop. We don't want to see our forces or our personnel come under fire, but if that happens, we're ready for it,” he told NBC's Meet the Press.

Iran, which backs both Hamas and Hezbollah, boosted its oil production in recent months amid diplomatic talks with Washington, emerging as the second-largest source of new oil supply this year, behind US shale.

Iran's oil production has recovered to about 3.1 million barrels per day after falling below 2 million bpd in 2020.

Tehran has faced restrictions since 2018 after the US withdrew from a nuclear agreement reached in the 2015. The subsequent reinstatement of sanctions on the country has rattled its economy and given rise to social unrest.

On the demand side, the third-quarter advance gross domestic report for the US is due this week.

The world’s largest economy is forecast to expand by 4.3 per cent on a year-on-year basis in the July-September period, up from 2.1 per cent in the second quarter, according to Emirates NBD.

The growth is underpinned by “robust personal consumption spending”, the UAE lender said.

Updated: October 23, 2023, 5:35 PM