Oil ends near two-week low on reported progress toward Israel-Hamas cease-fire deal

Price moves

• West Texas Intermediate crude for March delivery
  CL00,
  +0.50%

  CL.1,
  +0.50%

  CLH24,
  +0.50%
  fell $2.03, or 2.7%, to settle at $73.82 a barrel on the New York Mercantile Exchange, the lowest finish since Jan. 19, according to Dow Jones Market Data.

• April Brent crude
  BRN00,
  -0.40%

  BRNJ24,
  -0.40%,
  the global benchmark, lost $1.85, or 2.3%, to $78.70 a barrel on ICE Futures Europe, also the lowest since Jan. 19.

• March gasoline
  RBH24,
  -0.31%
  fell 1.6% to $2.19 a gallon, while March heating oil
  HOH24,
  +1.98%
  shed 2.6% to $2.71 a gallon.

• Natural gas for March delivery
  NGH24,
  -2.92%
  settled at $2.05 per million British thermal units, down 2.4%.

Market drivers

Oil traders have been monitoring developments in the Middle East to gauge global risks to the oil market.

Initial reports of a possible cease-fire agreement between Israel and Hamas caused a big selloff in oil prices, but the news then shifted more toward progress on a deal.

“Looks like a case of selling on the rumor, maybe later buying on the refutation,” said Michael Lynch, the president of Strategic Energy and Economic Research.

The rumor of a cease-fire deal “now looks to be false, but that clearly moved prices,” he told MarketWatch. “But once the U.S. strikes back against Iran or its proxies, there should be another spike up of a couple dollars, depending on how close to Iran the attacks are and whether it seems likely to escalate or not.”

On Thursday, the Jerusalem Post reported on an announcement by the Qatari Foreign Ministry that Hamas has given initial approval for a cease-fire and hostage deal in Gaza.

Qatar said Israel has also agreed to the proposal but that there is no deal yet, according to the report.

Read: ‘Fear alone is not enough’ to drive oil prices higher. Here’s why.

The reports of a deal were “premature, but at the same time, they are getting closer to a deal,” said Troy Vincent, senior market analyst at DTN.

An actual cease-fire between Israel and Hamas would “bring joy to the troubled shipping lines” in the region, said Manish Raj, managing director at Velandera Energy Partners, referring to the disruptions in the Red Sea blamed on Iran-backed Houthi rebels.

However, “there is the argument on the other side that the U.S. has made specific plans to take firm action,” he said. “Insofar as there is no military risk-premium built into oil prices, the runway to oil dropping is limited.” 

When the dust settles, oil will likely “go back to trading on fundamentals rather than on Middle East rumors,” Raj said.

Traders continued to brace for the U.S. response to a drone attack by Iran-backed militants that killed three U.S. service members in Jordan last weekend.

Oil futures slumped Wednesday after government data showed an unexpected increase in U.S. crude and gasoline inventories last week, but WTI and Brent both saw monthly gains, their first since September.

Meanwhile, production figures in Wednesday’s Energy Information Administration data showed U.S. crude production bounced back by 700,000 barrels a day last week to 13 million barrels a day. Cold weather in North Dakota and Texas had weighed on output last month, helping to buoy crude prices.

Separately Thursday, the EIA reported that U.S. natural-gas supplies in storage fell by 197 billion cubic feet for the week that ended Jan. 26. That was close to the average analyst forecast for a decline of 200 billion cubic feet, according to S&P Global Commodity Insights.

Also Thursday, the OPEC+ Joint Ministerial Monitoring Committee held a videoconference for the first time in about two months to review the oil market, but it did not recommend any changes to current production cuts.

OPEC+ ministers on Nov. 30 had announced voluntary output cuts totaling more than 2 million barrels a day through the first quarter of 2024, including the extension of a cut of 1 million barrels per day by Saudi Arabia.

OPEC+ is now set to decide in March whether to extend production cuts past the first quarter, StoneX’s Kansas City energy team, led by Alex Hodes, said in a Thursday note. “An extension of cuts would further buoy markets past the first quarter of this year,” they said.