Oil prices experienced a downturn on Thursday following President Trump’s announcement that Israel and the Palestinian group Hamas have reached an agreement on the “first phase” of a proposed peace plan from the US administration. This development signals a potential shift in a long-standing conflict that has significant implications for global oil markets.
Futures contracts for Brent crude, the international benchmark, fell by more than 0.8%, while West Texas Intermediate (WTI) crude prices also dropped by a similar margin. Previously, oil prices had seen a week of positive movement, but the announcement shifted market sentiment.
The proposed peace plan outlines that both Israel and Hamas will release all hostages, with Israel beginning a withdrawal from Gaza. This agreement marks the first significant step towards negotiations to end hostilities in the region for months, sparking cautious optimism among market analysts.
Concerns regarding escalating conflicts in the Middle East had initially driven oil prices upward, particularly after exchanges of airstrikes between Israel and Iran in June raised fears of a reduction in Iranian oil supply. However, the initial spike in prices proved temporary, and both Brent and WTI crude are now down approximately 12% for the year.
Energy consultancy Rystad Energy indicated that substantial price movements in the future will depend on the effectiveness of the peace agreement and ongoing developments in the war in Ukraine. According to Rystad’s chief economist Claudio Galimberti, the immediate effect on oil markets is likely a slight decrease in the geopolitical risk premium as investors assess the specifics of the peace plan.
Galimberti noted that if the plan for lasting peace is seen as credible, its impact on oil prices could be more structural and far-reaching. However, the ongoing conflict in Ukraine is expected to keep geopolitical risk premiums elevated, complicating the landscape for oil pricing.
