Oil edges higher as traders watch for latest moves from Israel

Oil edged higher, after Monday dropping the most since Hamas’ attack on Israel amid signs the conflict will remain contained for the time being.

Global benchmark Brent rose above $90 a barrel after tumbling by 2.5% on Monday, while West Texas Intermediate traded near $86. There are growing calls within Israel to rethink the scope of a ground invasion amid fear of retaliation by Hezbollah militants from Lebanon, the fate of some 200 hostages in Gaza and the risk of Israeli military casualties.

The lack of any immediate disruptions in the Middle East, the source of about of a third of the world’s crude, has seen some of the war-risk premium being eroded. Brent is still 7% higher than before the October 7 attack, however, and the main triggers for a further surge in prices include Washington ramping up compliance checks on sanctioned Iranian oil and Tehran disrupting key shipping routes.

The US said it will deploy more military forces to the Middle East in an effort to deter groups such as Hezbollah from trying to expand the war. Hamas, meanwhile, freed two more hostages, both elderly women, from the Gaza Strip on Monday.

“The diplomatic efforts in Gaza are indicating the possibility of de-escalation and stripping away the momentum in oil prices,” said Priyanka Sachdeva, a senior market analyst at Phillip Nova Pte. “Markets are also eagerly awaiting further clues on the US economy to gauge the domestic demand for fuel.”

Traders had been ramping up bullish oil positions due to the conflict, with money managers increasing their bets on higher Brent crude prices by the most in seven years in the week through October 17. Much of the most frenzied oil-trading activity in the last few days has been centered in the options market, with a record number of Brent calls changing hands over the past week.

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