Oil prices sank on Thursday on news that the Islamic Resistance Movement positively received a truce proposal to pause the Israel-Hamas war.
The US West Texas Intermediate (WTI) crude oil March futures plummeted 2.68% to $73.82 per barrel on February 01. However, analysts anticipate a 0.42% rebound to $74.13 a barrel on the following trading day.
After advancing 5.51% in January, its first monthly gain since September, the US petrol benchmark slid 5.14% in the past two days. Expectations of Hamas accepting a second hostage deal, leading to a halt in the war, dragged energy prices.
A potential ceasefire overshadowed fears of an escalation in the Red Sea crisis after the Pentagon vowed reprisal. The US Navy may abandon its planned retaliatory strikes on Houthi positions if an Israel-Hamas peace agreement gets signed beforehand.
Meanwhile, the Organization of Petroleum Exporting Countries and Allies (OPEC+) held its first monitoring meeting of the year on Thursday. The bloc decided to maintain current oil output cuts of 2.20 million barrels per day (bpd) this quarter.
In addition, the Federal Reserve held its benchmark interest rate at 5.50% during its February meeting, in line with projections. Comments by Chairman Jerome Powel dashed hopes for monetary easing in March but hinted at rate cuts later this year.
On Wednesday, the Energy Information Administration (EIA) reported a build in oil inventories of 1.23 million barrels in the week ending January 26. It defied the market consensus of a draw of 0.22 million barrels.
Israel-Hamas Armistice to Lift Pressure on Oil
A peace agreement between Israel and Hamas will eliminate much of the geopolitical tension weighing on oil prices. If Israel stops its offensive in the war-torn Gaza, political experts predict Houthi rebels will withdraw from the Red Sea.
The Iran-backed militia began attacking commercial vessels in the Red Sea in October 2023 in solidarity with Palestinians in Gaza. As a result, many shippers directed their tankers to take the longer South African route, disrupting the global energy supply.
Houthis demanded a ceasefire in the Israel-Hamas war and the removal of the blockage in the Gaza Strip. Thus, a dissolution of hostilities in Gaza will also lead to an end to the Red Sea Crisis.
