KEY POINTS
- Oil prices dropped more than 4 percent due to ceasefire talks between Hezbollah and Israel.
- Brent crude settled at $77.18, and WTI closed at $73.57 per barrel.
- U.S. crude inventories rose by 10.96 million barrels last week, while gasoline stocks fell.
Oil prices tumbled more than 4 percent on Tuesday after reports of a potential ceasefire between Hezbollah and Israel, which eased fears of a broader conflict in the Middle East. Brent crude futures dropped $3.75, or 4.63 percent, to settle at $77.18 a barrel, while U.S. West Texas Intermediate (WTI) crude slid $3.57, or 4.63 percent, to $73.57 per barrel. Both benchmarks fell more than $4 per barrel at their session lows.
Market Responds to Ceasefire Hopes
Investor sentiment shifted after reports surfaced of Hezbollah being open to a ceasefire with Israel. John Kilduff, a partner at Again Capital LLC, said, “We are very headline dependent. The news of a potential ceasefire immediately shifted market sentiment.”
According to Reuters, analysts also pointed out that while the market reacted positively to the ceasefire, ongoing energy concerns in the region kept volatility high.
Phil Flynn, a senior analyst at Price Futures Group, added, “A ceasefire headline can cause market swings, but the energy sector remains highly reactive to developments in this conflict.”
Brent crude briefly surpassed $80 per barrel on Monday, marking its highest level since August. The surge was driven by rising concerns about the expanding conflict in the Middle East. Last week, oil prices saw their largest weekly gain in over a year, jumping 8% on fears of escalating violence.
Impact of Hezbollah-Israel Tensions
Tensions between Israel and Hezbollah intensified following an Iranian missile strike on October 1, which targeted Israel.
The situation escalated as Israeli forces considered potential retaliatory actions. However, news of a possible ceasefire has provided temporary relief to the oil market.
Israeli Defense Minister Yoav Gallant indicated that Israeli forces had eliminated a top Hezbollah leader, heightening fears that conflict could spread. However, as diplomatic efforts towards a ceasefire emerged, market participants reacted quickly by selling off oil.
U.S. Oil Stocks and Hurricane Threat
In the U.S., Hurricane Milton, now a Category 5 storm, intensified and could impact oil production in the Gulf of Mexico. Already, at least one oil platform has been shut down.
At the same time, crude oil inventories in the U.S. rose significantly by 10.96 million barrels last week, while gasoline and distillate stocks fell.
Despite these factors, market attention remains largely focused on geopolitical developments in the Middle East, with some analysts cautioning that oil prices could face more downward pressure if no attacks on Iranian oil infrastructure materialize.
