Nov 2, 2023
Oil Heads for Second Weekly Drop as Israel War Still Contained
, Bloomberg News
(Bloomberg) -- Oil fell for the second straight week after the risk premium from the Israel-Hamas war vanished, bringing signs of soft demand to the fore.
West Texas Intermediate slid 2.4% to settle near $80 a barrel, down 5.9% for the week. That’s after the leader of Iran-backed militant group Hezbollah said it didn’t know about the Oct. 7 attack, reinforcing views that the war will remain contained. Cushioning the losses were a soft US jobs report that’s supporting speculation the Fed can stop increasing rates and a weaker dollar that makes crude more affordable for importers.
With the war yet to spill over into crucial oil-producing areas of the Middle East almost a month since it started, concerns about crude demand are resurfacing. US oil stockpiles rose in the most recent week of data, and factory activity in China, the biggest crude importer, moved back into contraction last month. Low liquidity has also exacerbated US oil’s steep price swings.
Markets have largely revolved “around demand concerns as Chinese economic data has continued to come in weak and US inventories built,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. She added that investors are waiting to see if Saudi Arabia leaves official selling prices untouched as anxieties over contagion in the Middle East wane.
In the options market, call skews for WTI and Brent have weakened as traders who piled into options market to profit from any war-induced rally exit the trade rapidly. Nearby implied volatility in Brent and WTI have plunged to the lowest in a month.
There are still risks that the Israel-Hamas conflict could spread. Hezbollah Secretary General Hassan Nasrallah praised “martyrs” in Lebanon who have been killed in fighting and called on Muslim countries to cut ties with Israel. Israel said its troops encircled Gaza City and that a cease-fire wasn’t on the table.
Terminal users can click here for more on the Israel-Hamas War.
(An earlier version removed an incorrect time reference from the second paragraph)
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