Oil prices fall, but settle above lows, as traders monitor Middle East risks

By Myra P. Saefong and William Watts

Weaker refinery margins could pose an obstacle to further crude gains: analysts

Oil futures declined on Monday, but settled above the session's lowest levels, as traders monitored risks to crude supplies in the Middle East.

Israel said it was withdrawing more soldiers from southern Gaza, while news reports said both Israel and Hamas had sent delegations to Cairo for cease-fire talks - though some reports said there had been no progress.

Price moves

West Texas Intermediate crude CL00 for May delivery CL.1 CLK24 fell 48 cents, or nearly 0.6%, to settle at $86.43 a barrel on the New York Mercantile Exchange, after trading as low as $84.69.June Brent crude BRN00 BRNM24, the global benchmark, declined by 79 cents, or 0.9%, at $90.38 a barrel on ICE Futures Europe. It traded as low as $88.78.May gasoline RBK24 shed 1.4% to $2.75 a gallon, while May heating oil HOK24 lost 1.6% to $2.73 a gallon.Natural gas for May delivery NGK24 settled at $1.84 per million British thermal units, up 3.3%.

Market drivers

Geopolitical factors remain the "primary influence on the oil market," and news that Israel was withdrawing some troops from parts of Gaza was seen as a step toward de-escalation in its military conflict with Hamas, Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

However, reports on Monday indicated that there has been no progress toward a cease-fire agreement between the sides.

Also, Israeli Prime Minister Benjamin Netanyahu reportedly announced that a date has been set for an invasion of Rafah, which has been a "hotly contested issue in the ongoing talks between Israel and Hamas," said Richey.

"The initial perception of improving geopolitical dynamics between Israel and Hamas initially weighed on oil prices [Monday], but renewed uncertainties about the potential for the military conflict to intensify" saw much of the early losses recovered before the close, Richey noted.

Oil prices had surged last week on fears of a more direct confrontation between Israel and Iran, with Brent topping $90 a barrel for the first time since October. Tehran had vowed to retaliate for an Israeli strike on Iran's embassy in Syria that killed senior Islamic Revolutionary Guard Corps commanders.

"Geopolitical risks have certainly grown, particularly when it comes to Israel and Iran, which has left the market nervous. However, any premium priced into the market will eventually erode in the absence of any escalation," said Ewa Manthey and Warren Patterson, commodity strategists at ING, in a note.

Strong economic data, including a much stronger-than-expected rise in March U.S. nonfarm payrolls, also boosted oil futures last week, with WTI rising 4.5% and Brent gaining 4.8%.

On Monday, data from Germany showed larger-than-expected growth in February industrial production, while the Eurozone Sentix Investor Confidence index climbed in April, according to news reports.

But upbeat economic data, particularly from the U.S., have led to a "reawakening" of fears about higher-for-longer interest rates, which "may disrupt the upward path of energy markets that are counting on a broad reduction in interest rates around the world this year to stimulate demand and economic activity," said Samer Hasn, market analyst at XS.com, in emailed commentary.

On the demand side, refinery margins have weakened with the recent move higher in crude oil, the ING strategists wrote. "In order for this rally to be sustained (in the absence of supply disruptions or ratcheting up in geopolitical risks), we need to see refinery margins strengthening with crude oil," they wrote.

Need to Know: The energy sector's on a tear. But $100 oil is not likely, says Goldman Sachs.

-Myra P. Saefong -William Watts

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04-08-24 1509ET

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