Oil prices fall on Middle East ceasefire talks

Crude oil prices rose slightly earlier today but soon reversed as the United States, the European Union and several Arab nations called for a temporary ceasefire between Israel and Lebanon.

In more bearish news, the Financial Times reported that Saudi Arabia is ready to lower its oil price target of $100 a barrel and boost production to regain market share, according to anonymous sources.

As for the prospect of a cease-fire between Israel and Lebanon, “This is an important breakthrough on the part of Lebanon, given everything that has happened there,” an anonymous US official was quoted as saying by the Times of Israel. Reuters reported that the group, which also includes France, the United Arab Emirates and Saudi Arabia, called for an immediate 21-day ceasefire in Lebanon and also called on the warring parties to agree to a ceasefire for Gaza.

Israel’s ambassador to the United Nations, Danny Danon, said the country was not opposed to a ceasefire and would prefer a diplomatic solution to the situation, pointing the finger at Iran as the “nexus of violence” in the region, according to Reuters, saying it must to be eliminated as a threat if peace in the Middle East was to be restored.

Ceasefire negotiations could weigh on oil prices on top of continued pessimism on demand, despite the US Energy Information Administration reporting a drawdown in crude stockpiles for the week to September 20.

Another downward pressure on oil prices came from Libya, where oil flows to export terminals are returning. The country’s rival governments have agreed on a procedure for appointing a new governor of the country’s central bank, a disagreement over which previously led to a halt in oil exports and production.

“Any revival in Libyan output would backfire on a market that is already hurt by concerns about weak demand from the US and China,” ANZ analysts were quoted as saying by Reuters.

Meanwhile, the latest edition of the Dallas Fed Energy Survey suggested some bullish developments could be on the horizon as activity in the sector eased in the third quarter amid uncertainty about the future ahead of the November election.

By Irina Slav for Oilprice.com

More top reads from Oilprice.com