Oil prices began tanking on Thursday afternoon as news was reported by Al Jazeera that Israel and Hamas had agreed to a ceasefire proposal that could put an end to the geopolitical premium that has buoyed oil in recent months. Al Jazeera deleted the Tweet a short while later, with oil prices reclaiming at least some of the losses.
While traders may have gotten used to-and perhaps immune from-fear-based geopolitical events that merely threaten to raise the price of oil without creating actual supply problems, today's drop in crude oil prices suggests that there was at least some component of a geopolitical risk premium present in the current price of oil-a premium that is quickly vanishing.
Brent crude oil had fallen to below $79 per barrel by 1:20pm ET, a drop off of 2.05% in a single day, landing at $78.90 at that time. The price of a WTI crude barrel had fallen by 1.95% at that same time, to $74.37, a loss of $1.50 per barrel.
Behind the price drop was news from Qatar, which said that Israel had agreed to a ceasefire proposal, Al Jazeera reported on Thursday afternoon. Qatar's considerable wealth affords it some power in the region despite its small stature and has managed to keep fair relationships with both the United States and Iran.
Qatar also indicated that Hamas had given its initial approval for a ceasefire and hostage deal. A Palestinian official close to the talks said that Hamas would be unlikely to reject the ceasefire proposal, but wouldn't sign it until assurances had been given that Israel was committed to putting an end to the conflict, the Jerusalem Post reported on Thursday afternoon.
But by 1:52 pm ET, Brent had regained to $80.33, with WTI clawing its way to $75.63 as Al Jazeera deleted its original Tweet, leaving the rumor unconfirmed that a deal had been reached.
Oil prices had been up on the day prior to the news Israel had agreed to the proposal after OPEC's JMMC confirmed that it would not be recommending that the group make any changes to production plans for the remainder of the quarter, and the Federal Reserve decided to keep interest rates as they are for now.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More