Oil is set to fall for the second week in a row as the Israel-Hamas conflict continues

In the midst of the ongoing Israel-Hamas conflict, global oil prices are poised for a second consecutive weekly drop. The situation remains contained, but uncertainties loom on the demand horizon. Brent, the global benchmark, hovers around $87 per barrel, following a 2.6% surge on Thursday, bolstered by dollar weakness and signals from the Federal Reserve suggesting a halt to tightening measures. West Texas Intermediate is trading above $82.

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In the midst of the ongoing Israel-Hamas conflict, global oil prices are poised for a second consecutive weekly drop. The situation remains contained, but uncertainties loom on the demand horizon. Brent, the global benchmark, hovers around $87 per barrel, following a 2.6% surge on Thursday, bolstered by dollar weakness and signals from the Federal Reserve suggesting a halt to tightening measures. West Texas Intermediate is trading above $82.

Despite Israel's assertion that its troops have encircled Gaza City and a cease-fire isn't on the table, US President Joe Biden has called for a pause to facilitate the release of more hostages. However, there are still concerns about potential escalation and its impact on oil markets. Yemen's Iran-backed Houthi rebels have launched rockets and drones at Israel, while Saudi Arabia's military is engaged in clashes with the militant group.

Vivek Dhar, an analyst at Commonwealth Bank of Australia, highlights the potential for Iran-backed Hezbollah to open a new front in the conflict, which could lead to further escalation. He suggests that direct Iranian involvement could push Brent oil futures to $100 a barrel.

The initial war premium on crude has largely dissipated, as supplies from the region, accounting for about a third of the world's oil, have remained unaffected. This has shifted attention back to concerns over demand. Recent data indicates a contraction in factory activity in China, the largest oil importer, while US fuel demand remains sluggish and crude stockpiles are on the rise.

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Additionally, there are indications of weakening diesel demand in several European countries, with notable declines in sales reported in Spain, the UK, Italy, and France for the month of September.

In a separate development, the US has increased pressure on the United Arab Emirates, a crucial OPEC producer, through additional sanctions related to Russia. These measures target entities involved in trading goods that could be used for both civilian and military purposes in President Vladimir Putin's conflict in Ukraine.