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Crude oil prices began the week with a decline, as continued diplomatic talks gave traders hope the conflict in the Middle East might not escalate into a full-scale regional war.
In mid-morning trade in Asia earlier today, Brent crude had slipped by more than $1 per barrel from Friday’s close while West Texas Intermediate shed over $1.70 per barrel earlier in the session. Later in the day the benchmarks recouped some of the losses but were still trending down at the time of writing.
"Israel agreed to hold off its attack on Hamas following pressure from the U.S.," ANZ Research analysts said, as quoted by Reuters. "This eased concerns that the Israel-Hamas war would spread across the Middle East and disrupt supplies."
On the other hand, Lebanon may get folded into the conflict, according to a warning by the Israeli authorities. And the oil price decline could turn out to be a short one.
Oil is “taking a breather while the focus on humanitarian aid and securing hostage releases suggest that a potential ground invasion from Israel can wait,” IG Asia analyst Yeap Jun Rong told Bloomberg earlier today. “That may contain the risks of further escalation, at least for now.”
The de-escalation efforts follow a strong week for oil, during which a missile strike on a Gaza hospital led to outrage among Arab world leaders and the cancelation of a summit in Jordan between the U.S. president and some of those same Arab leaders.
These events did not bode well for the security situation in the region but they apparently spurred a diplomatic effort that seems to have begun to pay off rather quickly. If things change, the situation in the Middle East could prompt an oil price surge of over $10 per barrel, RBC Capital markets analysts said in a note, as quoted by Bloomberg.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com