Oil edged higher after a steep drop spurred by signs that the Israel-Hamas war will remain contained while demand may be softening.

West Texas Intermediate rose to near US$83, after tumbling on Monday to erase all of the gains that followed the Oct. 7 attack on Israel. Brent was above US$88.

In the Middle East, Israel's ground invasion of Gaza has yet to spark a wider regional conflict that could risk crude supplies, although Prime Minister Benjamin Netanyahu has ruled out a cease-fire. Elsewhere, Saudi Arabia's military is on high alert after clashes with Yemen's Iran-backed Houthi rebels.

Crude is wrapping up a turbulent month, with prices rocked by the war and mixed indicators on demand. Both WTI and Brent are on course to cap declines in October as the risk premium triggered by the conflict fades, with concerns of a global slowdown returning to the fore. Data from Asia highlighted the risks as manufacturing in China fell back into contraction.

“The possibility of reduction in Middle East oil supply, consequently, has not evaporated and should it materialize oil prices will rally towards their annual peaks and possibly even above depending on the extent of the setback,” said Tamas Varga, an analyst at brokerage PVM. “Until then, however, no significant price jump is anticipated.” 

A narrowing in WTI's prompt spread — the difference between its two nearest contracts — suggests that near-term conditions are becoming less tight. The widely watched differential has dropped back to 65 cents a barrel in backwardation, down from about US$2 a barrel at the end of September.

Prices:

• WTI for December delivery traded 0.79 per cent higher at US$82.96 a barrel at 9:58 a.m. in London.
• Prices have dropped almost nine per cent this month.
• Brent for December settlement, which expires Tuesday, traded 0.96 per cent higher at US$88.29 a barrel.
• The more-active January contract was up 0.73 per cent at US$86.98 a barrel.