Oil Prices Drop Amid Peace Talks and Economic Concerns

By Laila Kearney

NEW YORK (Reuters) – Oil prices fell by more than $2 a barrel on Monday due to prospects of successful peace talks in the Middle East reducing supply risks, alongside leading oil importer China’s economic weakness threatening to curb demand.

Brent crude futures settled at $77.66 a barrel, dropping $2.02, or 2.5%. U.S. West Texas Intermediate crude futures settled at $74.37 a barrel, falling $2.28, or 3%.

“This market is under pressure under expectations that they’re going to continue to hammer away at the ceasefire talks,” said Bob Yawger, director of energy futures at Mizuho in New York.

U.S. Secretary of State Antony Blinken mentioned that the latest diplomatic push by Washington to achieve a ceasefire deal in Gaza was “probably the best, maybe the last opportunity” and urged all stakeholders to finalize the agreement.

Israeli Prime Minister Benjamin Netanyahu’s office confirmed his commitment to the latest American proposal regarding the release of hostages while ensuring Israel’s security needs are met.

“Much of the past week’s selling across the energy complex has represented a reduction in Mideast risk premium,” stated Jim Ritterbusch of Ritterbusch and Associates in Florida.

China’s economic issues also pressured oil prices, highlighted by new home prices falling at their fastest pace in nine years. Chinese refineries significantly cut crude processing rates last month due to weak fuel demand.

Both crude benchmarks fell nearly 2% on Friday as investors adjusted their Chinese demand growth expectations but ended the week largely unchanged after U.S. data indicated moderating inflation despite robust retail spending.

“Persistent concerns about slow demand in China led to a sell-off,” said Hiroyuki Kikukawa, president of NS Trading. He added that the nearing end of the peak driving season in the United States was another factor influencing prices.

Nevertheless, supply risks from ongoing tensions in the Middle East and escalation of the Russia-Ukraine war continue to support the market. Energy investors are also anticipating signals regarding the U.S. Federal Reserve’s future interest rate decisions.

A slight majority of economists polled by Reuters expect the Fed to cut interest rates by 25 basis points at each of the remaining three meetings this year, which is one more reduction than predicted last month, with a recession deemed unlikely. Rate cuts could stimulate economic activity in the top oil-consuming nation.