Oil fell below US$84 amid signs the crude market’s tightness has slackened and the Israel-Hamas war will remain contained for the time being.

West Texas Intermediate extended Monday’s drop, which was the biggest decline since Hamas’s attack on Israel. Concerns about the conflict spreading more broadly have eased amid growing calls within Israel to rethink a ground invasion of Gaza. Looming large are fears about the fate of some 200 hostages held there, the danger of retaliation by Hezbollah and the risk of Israeli military casualties.

Key oil market metrics also are showing signs of loosening. The prompt spread for the U.S. benchmark — the difference between its two nearest contracts — weakened to 83 cents, down from $1.60 at the start of the war. U.S. gasoline futures slumped 3.2 per cent to trade at $2.25 a gallon. Additionally, Russian crude exports rose to a four-month high, despite the Kremlin’s pact with Saudi Arabia to keep barrels off the global market.

“Crude is battling the trifecta of headwinds today,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “Geopolitical risks are easing modestly, physical indicators are softening, and the US dollar is rising. Much of the recent length in the market has been driven by retail buying, which tends to be short-term, event-driven traders.”

The lack of any immediate supply disruptions in the Middle East, the source of about of a third of the world’s crude, has eroded most of the war-risk premium. WTI is only about one per cent higher than before the Oct. 7 attack. Still, the possibility remains of Washington ramping up compliance checks on sanctioned Iranian oil and Tehran disrupting key shipping routes.

Crude markets have seen major acquisitions in recent weeks that may result in rising oil output. Exxon Mobil Corp. announced a takeover of Pioneer Natural Resources Co., making it the king of US shale oil. Meanwhile, Chevron Corp.’s $53 billion deal to buy Hess Corp. gives it 30 per cent ownership of more than 11 billion barrels-equivalent of recoverable resources in Guyana, one of the world’s major new oil producers.

Prices:

  • WTI for December delivery fell 2.2 per cent to $83.65 a barrel at 11:44 a.m. in New York.
  • Brent for December settlement slid 1.9 per cent to $88.11 a barrel.