HOUSTON: Oil slipped more than three per cent on Monday with US crude oil futures falling more than $3 a barrel as fears eased about the Israel’s war on Gaza disrupting supply from the region and as investors grew cautious ahead of this week’s US Federal Reserve meeting.

Brent crude futures fell $2.90, or 3.21 per cent, to $87.58 a barrel by 10:32am CDT (1532 GMT), while US West Texas Intermediate crude was down $3.14, or 3.67pc, at $82.40.

Crude had jumped 3pc on Friday after Israel stepped up ground incursions into Gaza, stoking worries the conflict could expand in a region that accounts for a third of global oil output. However, that concern was fading on Monday, analysts said.

“The war premium has come out of the market,” said Phil Flynn, analyst at Price Futures Group. “It’s a situation where over the weekend the war seemed to intensify, but there seems to be no disruption to supply.”

WB sees oil price spike

The World Bank said on Monday it expected global oil prices to average $90 a barrel in the fourth quarter and fall to an average of $81 in 2023 as slowing growth eases demand, but warned that an escalation of the latest Middle East conflict could spike prices significantly higher.

The World Bank’s latest Commodity Markets Outlook report noted that oil prices have risen only about 6pc since the start of Israeli war on Gaza, while prices of agricultural commodities, most metals and other commodities “have barely budged.” The report outlines three risk scenarios based on historical episodes involving regional conflicts since the 1970s, with increasing severity and consequences.

A “small disruption” scenario equivalent to the reduction in oil output seen during the Libyan civil war in 2011 of about 500,000 to two million barrels per day (bpd) would drive oil prices up to a range of $93 to $102 a barrel in the fourth quarter, the bank said.

A “medium disruption” scenario — roughly equivalent to the Iraq war in 2003 — would cut global oil supplies by three million to five million bpd, pushing prices to between $109 and $121 per barrel.

Published in Dawn, October 31st, 2023