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Crude oil futures surrendered gains and settled lower Thursday following news reports of a possible agreement on a ceasefire between Israel and Hamas, which could reduce tensions in the Middle East and attacks on shipping in the Red Sea that have helped lift oil prices.
Al Jazeera reported that Israel had agreed to a ceasefire, but later deleted that post and said Hamas had received a ceasefire proposal “in a positive atmosphere.”
Bloomberg then reported that negotiations were in the early stages, with a breakthrough not likely in the coming days.
The ceasefire reports were “premature, but at the same time, they are getting closer to a deal,” DTN market analyst Troy Vincent said.
The reports initially sent crude prices sharply lower before paring losses and briefly edging back into positive territory before fading again, in part because of a shutdown of the biggest refinery in the U.S. Midwest.
BP said Thursday afternoon it was shutting down its 440K bbl/day Whiting, Indiana, refinery after a power outage.
Also, OPEC’s Joint Ministerial Monitoring Committee met by videoconference to review the oil market but did not recommend any changes to current production cuts for the current quarter; the committee is scheduled to meet again on April 3.
Front-month Nymex crude (CL1:COM) for March delivery settled -2.7% to $73.82/bbl, and front-month April Brent crude (CO1:COM) closed -2.3% to $78.70/bbl.
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“A ceasefire would certainly call into question if and when the Biden administration will respond for the killing by an Iranian-backed militia of three U.S. servicemen” in Jordan, Mizuho’s Robert Yawger said.
Geopolitical tensions that are supporting higher crude prices should give way to a more bearish fundamental outlook, Citi analysts said Thursday.
While risks from Ukraine drone attacks on Russian oil facilities and the prospect for a decisive U.S. response to the attacks of U.S. troops in Jordan could temporarily prop up oil prices, “we still expect medium-term oil market fundamentals to get looser, putting downside pressure on oil prices,” Citi said.
Saudi Arabia’s decision not to raise its production capacity could suggest that OPEC+ “has recognized it has a problem with rising spare capacity and has limited room to raise production in the next few years,” Citi also said.