The cease-fire talks between Israel and Hamas raised hopes of a resolution to the conflict in the Middle East, home to the majority of the world's oil supplies, and temporarily limited the upward oil price trajectory.
International benchmark Brent hit the highest levels seen since October 2023 at $90.53 on April 5. This was due to increasing supply concerns from the turmoil in the Middle East. However, prices lost momentum and dropped to an average of $83.43 after a new cease-fire proposal and a proposition of a mutual prisoner exchange under the mediation of Egypt and Qatar were submitted to Hamas on April 26.
Brent lost about 3% on May 1 and closed trade at $83.44 to record the lowest close price of the last seven weeks. On the same day, West Texas Intermediate (WTI) crude oil hit $79.01 a barrel, a loss of about 3.5%.
On May 7, Brent fell to $82.96 from $83.33 as global supply concerns eased after the head of the political bureau of Hamas, Ismail Haniyeh, conveyed his group's approval of the Qatari and Egyptian-brokered cease-fire proposal for the Gaza Strip on May 6. WTI crude traded at $78.35 a barrel, a fall of 0.16% from $78.48.
However, despite Hamas' decision, Israel鈥檚 War Cabinet announced that it would continue its attacks in the city of Rafah in the southern Gaza Strip, limiting further price declines.
-Geopolitical risk premiums continue to influence prices
Bob McNally, president of the Washington-based energy consultancy Rapidan Energy, said that although crude oil is valued fairly on market fundamentals alone in the current range, geopolitical risks would likely dominate the market again when Israel shifts its security operations to Lebanon and Iran.
"Crude prices dropped mainly due to a perceived reduction in the geopolitical risk premium due to hopes for a ceasefire in Gaza," McNally told Anadolu.
McNally argued that price declines would not impact the decisions that the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, will take at its next group meeting on June 1.
"The recent oil price drop will likely not dissuade OPEC+ from extending current output levels on June 1," he said.
Global oil stocks are set to fall as a result of the voluntary extension of crude oil production cuts by several key producing nations in the OPEC+ group, including Saudi Arabia and Russia, until the end of June.
In its Short-Term Energy Outlook (STEO) report released this month, the US Energy Information Administration (EIA) forecast that global oil inventories would fall by 300,000 barrels per day in the first half of this year.
-Difficulty in price predictions
Fereydoun Barkeshli, the president of the Vienna Energy Research Group, said it would not be easy to anticipate future price hikes, as price movements mostly depend on the Russia-Ukraine war and conflicts in the Middle East.
"The trajectory of oil prices depends on a major shift in either of the two fronts. Direct US involvement in any of the two wars can change a lot for the global oil markets," he said.
The decisions that the OPEC+ group will take at its next meeting will also impact prices, given that the United Arab Emirates, one of the few OPEC members with sizeable unused oil production capacity, has been demanding a readjustment of the daily oil production volumes for over a year.
Barkeshli believes that if oil prices rise over $80 per barrel, major oil producers like Saudi Arabia and Russia will be satisfied.
However, he said that if Brent falls below $80 per barrel, OPEC+ will likely roll over and will call an emergency meeting sometime in July.
He stressed that Russia signaled it would not have any problems if crude prices remain close to $70 per barrel.
"Russia considers US shale oil as the enemy number one of OPEC+. $70 is the price that will impact shale oil considerably. At the current low to mid-$80 per barrel, the most likely scenario for OPEC+ is to roll over," he said.
By Duygu Alhan
Anadolu Agency