Oil prices slide to post second straight weekly loss as Israel-Gaza war remains contained

Brent has given up most gains since the conflict began on October 7

Israel continues to bombard the Gaza Strip, killing thousands of Palestinians. AFP

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Oil prices slid on Friday and posted a second straight week of losses after the Israel-Gaza war remained contained and the US Federal Reserve hinted at the possibility of raising interest rates in future to bring down inflation.

Brent, the benchmark for two thirds of the world’s oil, shed 2.26 per cent, or $1.96, to settle at $84.89 a barrel. West Texas Intermediate, the gauge that tracks US crude, slipped 2.36 per cent, or $1.95, to finish at $80.51 a barrel.

On a weekly basis, Brent lost 4.8 per cent while WTI shed nearly 6 per cent.

“Oil benchmarks have unwound some of the geopolitical premiums that were baked into prices as the Israel-Hamas war appears contained for the time being,” Han Tan, chief market analyst at Exinity, told The National.

“Yet oil prices still retain the propensity for lurching higher if this conflict does broaden and actually disrupts global supplies.”

The Israel-Gaza war appears to have been contained, with US President Joe Biden calling for a “pause” amid mounting domestic and global pressure to try to moderate Israel's deadly response to the October 7 Hamas attacks.

Secretary of State Antony Blinken is also expected to urge the Israeli government and military to agree to “humanitarian pauses” with Hamas while on his trip to Israel on Friday.

“On my way to Tel Aviv for more diplomacy during an incredibly challenging time,” Mr Blinken, who landed in Israel this morning, said last night on social media platform X, formerly known as Twitter.

“We will continue to work with regional leaders to protect civilians and prevent the spread of conflict. We remain focused on two states and broader peace and security in the region.”

The Hamas group's deadly attack outside the Gaza Strip killed about 1,400 people, mostly civilians.

An oil pump jack operates in Signal Hill, California. Oil prices rose on Friday but are headed for a weekly loss. EPA

Israel's response has left more than 9,000 people dead in Gaza, according to local authorities.

Brent has given up most gains since the Israel-Gaza war broke out last month as diplomatic efforts have intensified amid a campaign to stop the war from spreading across the region, which could cause disruption to supplies.

“With supply-side risks being kept at bay for now, demand-side concerns have crept back on to the market’s radar, given China’s still-soft recovery,” Mr Tan said.

China's economy has yet to fully recover even as the world's second-largest economy and top crude importer eased coronavirus pandemic related restrictions earlier this year.

The International Monetary Fund expects growth in growth in China to hit 5 per cent, slower than the previous 5.2 per cent projection, for 2023.

The Chinese economy, which expanded by 3 per cent in 2022, is expected to grow by 4.2 per cent in 2024, a 0.3 percentage point reduction from earlier estimates.

Opec is also expected to be "accommodating in managing the volatility of oil prices in the wake of the Israel-Hamas war", Gary Dugan, chief investment officer at Dalma Capital, said.

"If oil prices were to rise to the $100 [per barrel] level, we would expect Opec to increase production and bring a better balance to the markets."

The oil producers' group "would not want to see a level of prices or volatility of prices that led to the risk of oil demand destruction", Mr Dugan added.

The 23 Opec member states have enforced total production curbs of 3.66 million barrels per day or about 3.7 per cent of global demand.

This includes a reduction of 2 million bpd agreed on last year and voluntary cuts of 1.66 million bpd, announced in April and extended to December 2024.

The US Federal Reserve on Wednesday left interest rates unchanged between 5.25 per cent and 5.5 per cent for a second time but did not rule out a rate increase in the coming months.

The central bank said it was considering “the extent of additional policy firming that may be appropriate to return inflation to 2 per cent over time”.