Oil extended the biggest drop in two weeks as the US said Israel accepted a cease-fire proposal in Gaza, potentially easing supply risks amid mounting concerns about the global demand outlook.
Brent crude fell below $77 a barrel after shedding 2.5% on Monday, while US marker West Texas Intermediate dipped under $74. US Secretary of State Antony Blinken said the next step was for Hamas to agree to the deal aimed at de-escalating the 10-month conflict.
China’s worsening economic malaise is keeping the market subdued. Recent data showed shrinking factory activity and a decline in oil demand, while the world’s largest importer is also considering a new rescue plan for its beleaguered property sector.
“One of the key drivers behind today’s price drop appears to be the hope for a cease-fire in Gaza,” said Ole Hvalbye, an analyst at SEB AB. “As we look ahead, Brent crude could likely test a new yearly low as, in the short term, bearish sentiments outweigh bullish ones.”
Oil has surrendered most of its year-to-date gains as the lift from OPEC+ supply curbs and expectations for lower US interest rates have been countered by China’s challenging outlook. The Organization of the Petroleum Exporting Countries plans to restore some barrels next quarter, although that could change if prices keep falling, and balances for next year look oversupplied.
Options are signaling the market is now anticipating a lower risk of futures spiking. Brent option skews have returned to their usual bias toward puts — which profit from lower prices — for the first time in two weeks.
