Oil Prices Remain Subdued on the Prospect of an Israel-Lebanon Ceasefire

Crude oil prices remained subdued after falling to the lowest in a month earlier in the week, as Israel indicated it was ready to negotiate an end to the hostilities with Lebanon.

At the time of writing, Brent crude was trading at $71.76 per barrel, and West Texas Intermediate was changing hands at $67.91 per barrel, both slightly up from opening in Asian trade.

“A hefty plunge in oil prices since the start of the week may call for an attempt to stabilise in today’s session, but overall gains remain limited, given the lack of bullish catalysts to drive a more sustained up-move,” IG market strategist Yeap Jun Rong told Reuters, adding that the prospect of a ceasefire reduces the risk of further escalation in the oil region, diminishing concern about a supply disruption.

However, Standard Chartered warned that the easing of that concern may be premature. “We see the risk of an escalating series of attacks over an extended period, with no immediate prospect of either military or diplomatic resolution,” analysts with the bank wrote in a report, as cited by Bloomberg.

“There has been a trend over the past year for the market to act as if every escalation in Middle East geopolitical risk is a de-escalation,” they wrote, pointing out that Israel had still not achieved all its goals with regard to Iran, leaving a door open to further regional violence that could affect prices, especially in the months leading up to the inauguration of the next U.S. president.

In further potentially bullish news for oil, China is set to unveil yet another fiscal stimulus package next week. However, Reuters noted in a report on the news, that additional stimulus would likely act more as a stabilizer of the economy rather than a booster, limiting its potential positive impact on crude oil demand.