Oil prices fell sharply in early Asian trade on Monday after Israel withdrew soldiers from parts of Gaza and committed to renewed dialogue over a potential ceasefire with Hamas.
The move presented a potential de-escalation in the long-running war- concerns over which were a key boost to oil prices in recent weeks.
Oil prices were also open to some profit-taking after surging to five-month highs last week, after Iran threatened military action against Israel over alleged strikes on an embassy in Syria.
Brent oil futures expiring in June fell 1.8% to $89.56 a barrel, while West Texas Intermediate crude futures fell 1.7% to $84.63 a barrel by 20:35 ET (00:35 GMT).
Israel, Hamas open ceasefire talks in Egypt
Teams from Israel and Hamas met in Egypt for renewed ceasefire talks, with the dialogue coming just days before the Eid holidays this week.
Israel also pulled out troops from Southern Gaza, including Khan Younis. But the country still maintained its forces in other parts of the disputed region.
The moves- particularly the ceasefire talks- presented some potential for a greater de-escalation in the conflict, especially as the U.S. urged Israel to tone down its offensive against Gaza over human rights violations.
But a de-escalation in the Israel-Hamas war potentially puts to rest a key point of support for oil markets- specifically that crude supplies from the Middle East will be disrupted by the conflict.
This notion was a key point of support for oil in recent weeks, and is still expected to remain in play until the signing of an official ceasefire.
Tight oil supply expectations remain in play
Expectations of tighter oil supplies had also boosted crude prices in recent weeks, and continued to remain in play.
The Organization of Petroleum Exporting Countries and allies (OPEC+) recently reiterated that its production cuts will remain in place until end-June, while top producer Russia also flagged deeper production cuts.
Russian fuel production was also disrupted by Ukrainian strikes on the country’s oil infrastructure, which put several key refineries out of commission.
On the demand front, positive economic data from top oil importer China also ramped up optimism, while shrinking U.S. gasoline inventories presented strong demand in the world’s largest fuel consumer.