Story by Bloomberg|Mia Gindis | Oil slipped from a five-month high as Hamas and Israel tentatively agreed to a cease-fire, cooling a rally fueled by risks to Russian and Iranian supplies.
West Texas Intermediate retreated 1.7% to settle at $77.50 a barrel on Tuesday after CBS reported Israel and Hamas agreed in principle to a draft deal for a cease-fire and hostage release. Such a deal would mark a potential end to a conflict that has buffeted global oil markets for more than 15 months.
The relative strength index shows crude futures have been mostly overbought since the start of the year, a reading that signals prices are due for a pullback. Algorithmic-driven investors known as commodity trading advisers, or CTAs, are flashing signs of buying exhaustion, said Daniel Ghali, a commodity strategist at TD Securities.
“Our simulations of future prices already suggest that in no scenario will CTAs add to their WTI crude length, suggesting a continued rise in supply risk premia associated with Biden’s farewell sanctions on Russia will now be needed to support prices further,” Ghali said.
The US benchmark had climbed 6.6% over the previous two sessions, while oil shipping rates surged the most in months on Monday in response to the measures from Washington that target about 160 tankers involved in the Russian oil trade.
While the full impact of the latest US sanctions package remains unclear, it may drive a rerouting of global flows as users across Asia, including refiners in India and China, are forced to reach far and wide for replacement barrels.
Some early signs of disruption are already apparent. Among them, a senior Indian bureaucrat told reporters that sanctioned vessels won’t be allowed to discharge, although the country’s state-owned refiners expect Moscow to find workarounds.
The potential for Russian oil to continue reaching its intended destinations is easing some concerns about supply disruptions, and “crude traders are pausing to evaluate the evolving information before deciding whether to chase the rally further,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group.
Meanwhile, Alberta Premier Danielle Smith warned that Trump’s tariffs won’t have exemptions for oil after meeting the president-elect in Florida. More than half of US crude imports come from Canada, most of it from Alberta.
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