Oil slumped as talks to pause the Israel-Hamas war reduced crude’s geopolitical risk premium, with the decline accelerating after the commodity slipped below key technical levels.

West Texas Intermediate fell 2.1 per cent to settle around US$72 a barrel. Futures are down 7.3 per cent since last Friday — the biggest weekly tumble since early October. 

Early negotiations to halt bombardments and release hostages are bolstering prospects for a resolution to the four-month conflict, which has threatened Middle East energy flows. Headlines on the talks and oil’s drop below its 200-day and 50-day moving averages triggered trend-following algorithms, exacerbating the decline.

Meanwhile, there have been several indications that world markets remain adequately supplied. On Friday, WTI’s prompt spread — the difference between its two nearest contracts — flipped as much as 5 cents into contango, a bearish structure that shows weakening demand for near-term barrels. 

The spillover from the war in Israel and Gaza, most notably disruptions to shipping in the Red Sea, has been among the key drivers pushing crude futures higher this year. Still, Yemen-based Houthi militants continue to target merchant shipping in the Red Sea region, and the U.S. has been hinting at its response to a drone assault that killed American troops in Jordan.

Meanwhile, fuel markets, which have been most impacted by the disruption in the Middle East, saw a dramatic dropoff in prices after news of a potential ceasefire. Gasoil futures fell more than 4 per cent on Friday, while diesel fell to $2.66 a gallon, the lowest since mid-January. 

Prices:

• WTI for March delivery slipped 2.1 per cent to settle at $72.28 a barrel in New York.
• Brent for April settlement slid 1.7 per cent to $77.33 a barrel.