Oil closes down 3% as tensions ease in the Middle East

Oil closed lower this Thursday (4), pressured by the prospect of reduced tensions in the Middle East after the apparent progress in negotiations between Israel and Hezbollah.

Along with hopes of easing tensions between the United States and Iran, the market has reduced part of the geopolitical risk premium incorporated into prices in recent weeks, although doubts persist about the effective implementation of the agreement.

Traded on the New York Mercantile Exchange (Nymex), WTI oil for July closed down 3.1% (US$2.98), at US$93.04 per barrel. Brent oil for August, traded on London's Intercontinental Exchange (ICE), closed down 2.84% (US$2.78), at US$95.03 a barrel.

The market gave back the previous session's gains after signaling a possible truce between Israel and Hezbollah. Lebanese President Joseph Aoun said implementation of a ceasefire could begin within 24 hours of the agreement's final approval.

Despite this, Iran denied concrete progress in the talks and conditioned any understanding with the US and Israel on the end of Israeli attacks and the withdrawal of troops from Lebanese territory.

XS.com noted, however, that previous episodes of apparent de-escalation ended up being followed by new rounds of conflict. According to the institution, the absence of a formal and binding agreement maintains the risk of a resumption of hostilities and new pressure on the energy market.

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In the same vein, the Price Futures Group stated that any sign of geopolitical easing triggers profit-taking by investors, but highlighted that the risks to global supply remain high.

Even in the case of diplomatic progress and an eventual full reopening of the Strait of Hormuz, the normalization of oil flows could take months due to logistical and operational challenges, he added.

For ING, global stocks continue to offer partial support to the market, but the trend is for a gradual tightening of supply throughout the third quarter, maintaining upward risks for prices if tensions intensify again.

*With information from Dow Jones Newswires.

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Source: CNN