Oil Set for Biggest Weekly Drop Since February as War Risk Fades

Oil Set for Biggest Weekly Drop Since February as War Risk Fades

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(Bloomberg) — Oil headed for its biggest weekly decline since February on signs of easing geopolitical risks in the Middle East and weakening across fuel markets.

Brent traded below $84 a barrel for a weekly loss of more than 6%, while West Texas Intermediate was near $79. Hamas is studying a proposal for a temporary cease-fire with Israel and plans to send a delegation to Egypt to continue negotiations. Meanwhile, data from the US this week showed another slide in implied gasoline demand ahead of the key summer driving season.

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Oil has dropped about 10% from a five-month high in mid-April as the fallout from Iran’s unprecedented attack on Israel remained limited and Washington pushed for an end to the conflict in Gaza. A surprise jump in US crude inventories on Wednesday sparked a drop in futures, adding to concerns about demand from top importer China and weakness in product markets including diesel and gasoline.

“The geopolitical premium is being quickly priced out as Israel appears more willing to accept a hostage deal,” said Robert Rennie, head of commodity and carbon strategy at Westpac Banking Corp. “It’s hard to see a major push above the $90-$95 region for Brent, and the break below $85 suggests a major top is now in place.”

The move lower has fueled speculation that OPEC+ will prolong output cuts, with almost 90% of traders and analysts surveyed by Bloomberg predicting the group will extend curbs when it meets on June 1. There is some potential for conflict at the gathering, after the United Arab Emirates’s main oil company said it increased production capacity, which would bolster the key member’s case to pump more oil.

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OPEC “will make the difference in terms of supply-demand balance,” Shell Plc Chief Financial Officer Sinead Gorman said on an earnings call on Thursday. That follows a warning by the International Energy Agency last month that global oil markets could tip back into surplus if the group and its allies relax supply restraints as demand slows.

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