Oil prices tumbled close to their lowest level in two months on Tuesday as risk premium weakened with the easing of conflict between Israel and Lebanon’s Hezbollah.
Brent crude oil futures for September delivery fell below the $80 threshold, trading 0.41% lower at $79.45 per barrel. The US West Texas Intermediate (WTI) crude futures expiring in the same month dropped 0.47% to $75.45 per barrel.
Sentiment was also muted as markets remained cautious ahead of the Organization of Petroleum Exporting Countries’ (OPEC) meeting on Thursday, although the crude’s recent decline might soften the case for a potential reduction in output cuts.
Ongoing concerns over sluggish oil demand, particularly in top importer China, continued to affect the mood in the markets as well.
Gains were also limited as traders awaited central bank meetings around the world. The Federal Reserve, the Bank of England (BoE), and the Bank of Japan (BOJ) are all set to hold monetary policy meetings this week.
The Fed is widely seen leaving key interest rates unchanged, but its upcoming meeting on Wednesday will be closely watched for any cues on rate cuts.
Israel Aims to Avoid All-Out War, Alleviates Supply Risks
The risk premium on oil prices weakened on Tuesday after it was reported that Israel has no intentions of engaging in an all-out war against Lebanon in response to Saturday’s missile attack on a football pitch in Israel-occupied Golan Heights, which resulted in 12 casualties.
Israel and the US claimed the Iran-backed Lebanese military group Hezbollah to be responsible for the lethal rocket strike, although the armed group has strongly denied any involvement.
Israeli Prime Minister Benjamin Netanyahu on Monday vowed a “harsh” response to the attack, while two Israeli officials reportedly said Israel only aims to wound Hezbollah and not put the oil-rich region of the Middle East in a full-blown war situation.
Israel is reportedly planning for a few days of fighting in a retaliatory response to the incident, according to the officials.
An all-out war scenario presents potential oil supply disruptions in the Middle East, but the region has so far seen minor disruptions in production despite the Israel-Hamas war raging on for nine months. Still, the odds of the two parties reaching a ceasefire agreement seemed to remain low.
