Oil Retreats as US Diplomatic Drive Set to Bring Biden to Israel

(Bloomberg) -- Oil fell as the US intensified diplomatic efforts to contain the crisis in Gaza, with President Joe Biden due to visit Israel this week to spearhead his administration’s drive to prevent a regional conflagration.

West Texas Intermediate dropped toward $86 a barrel after ending more than 1% lower on Monday. Biden will travel to the country on Wednesday to show his support after the Oct. 7 attacks by Hamas that sparked the conflict. At the same time, Israel is still making plans for a ground offensive into Gaza.

The crude market has been left on edge by the sudden crisis in the Middle East on concern that it risks spreading beyond Israel and Gaza, potentially endangering crude flows from key producers. Iran, which supports Hamas, has warned that an expansion of the war was “approaching the inevitable stage.” Tehran also backs the Hezbollah armed group in southern Lebanon.

“The current restraint in oil prices is highly conditional on the conflict not spilling over more widely,” said Vishnu Varathan, Asia head of economics and strategy for Mizuho Bank Ltd. in Singapore. While $100-to-$120 crude wasn’t a base case, such a spike was a significant and growing risk, he said.

Biden’s visit to the Middle East — which will also include a stop in Jordan — follows a whirwhirl of regional diplomacy by his secretary of state, Antony Blinken. The president’s message would be “to any actor, state or non-state, trying to take advantage of this crisis to attack it — don’t,” Blinken said.

Beyond the region, meanwhile, crude traders will track events in Barbados, where Venezuela’s government may sign a deal with the opposition later on Tuesday. If concluded, such an agreement could pave the way for the US to ease sanctions against the country, potentially boosting oil exports.

Oil’s timespreads suggest the market’s tightness may be starting to ease off. Brent’s prompt spread — the difference between its two nearest contracts — was $1.38 a barrel in backwardation. While that remains a bullish pattern, it’s below the $1.45 a barrel on Friday Oct. 6, the day before the Hamas attack.

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