Key points:

  • On Tuesday, oil prices plummeted more than 4% due to reports of a potential ceasefire between Hezbollah and Israel.
  • Analysts predict further significant fluctuations in oil prices due to the ongoing conflict.
  • Concerns about potential attacks on Iran’s oil infrastructure remain, though the likelihood of such attacks is low.

During Tuesday’s trading session, oil prices dropped significantly, with a decline of over 4%. The sharp drop was triggered by reports of a possible ceasefire agreement between the Lebanese group Hezbollah and Israel. However, fears of potential attacks on Iranian oil facilities provided some support to prices.

At the close of trading, December Brent crude oil futures dropped by $3.75, or 4.63%, settling at $77.18 per barrel. U.S. West Texas Intermediate crude futures also finished in the red, losing $3.57, or 4.63%, to close at $73.57 per barrel.

What happened to oil last week?

“We are still very sensitive to headlines,” said John Kilduff, a partner at investment firm Again Capital LLC. “This morning, there were reports of a possible ceasefire. However, clarifications soon followed, indicating that the conflicting parties are still discussing the details of a peace agreement, including energy-related issues.”

“The announcement of Hezbollah’s willingness to cease fire was the headline that caught everyone’s attention,” explained Phil Flynn, a senior analyst at Price Futures Group. “We can expect significant volatility in oil prices as the conflict unfolds.”

On Monday, the price of Brent crude exceeded $80 per barrel for the first time since August, surging more than 3% in a single day. This rapid increase continued the positive trend from the previous week, during which oil prices rose by nearly 8%, the highest growth rate in the past 12 months. This growth was driven by fears of the military conflict in the Middle East escalating.

Can we expect oil prices to rise again?

Hezbollah indicated that it is ready for ceasefire talks after Israeli forces intensified the conflict with the Iran-backed group by launching new operations in southern Lebanon. Israeli Defense Minister Yoav Gallant stated that a potential replacement for the slain Hezbollah leader Sayyed Hassan Nasrallah had also been eliminated. Late Tuesday, the Israeli military warned civilians to avoid certain buildings in southern Beirut. The rise in oil prices began after Iran launched missile strikes on Israel on October 1. Israel vowed to retaliate, stating that it was considering various courses of action.

Some analysts believe that an attack on Iran’s oil infrastructure is unlikely and warn that oil prices could come under significant pressure if Israel focuses on other targets.

Meanwhile, in the U.S., Hurricane Milton, which strengthened to a Category 5 storm, is heading toward Florida, leading to the closure of at least one oil and gas platform in the Gulf of Mexico on Monday.

According to data provided by the American Petroleum Institute, U.S. crude oil inventories increased by nearly 11 million barrels last week, while fuel stocks declined, as confirmed by market sources on Tuesday.