OIL FUTURES: Crude oil futures slip as Gaza ceasefire talks spark hopes of easing supply concerns

Crude oil futures fell in midafternoon London trade Aug. 19 as geopolitical risk premiums eased on hopes of a Gaza ceasefire deal.

At 11:59 GMT, the ICE October Brent futures contract was trading at $78.94 /b, down 74 cents/b from the previous close, while the September NYMEX light sweet crude contract was 98 cents/b lower at $75.95/b.

The geopolitical risk premium in the oil futures market eased on the day as the US Secretary of State Anthony Blinken's efforts to secure a ceasefire and hostage-release deal in the Israel-Hamas war raised hopes of lower supply-side tensions in the region.

"Today the geopolitical issue is probably number one," Arne Lohmann Rasmussen, head of research at Global Risk Management, said Aug. 19.

"Sentiment remains bearish towards the negative side," Rasmussen said adding, "It seems the market is pricing out the geopolitical risk premium because we had the ceasefire talks."

However, supply risks continue to underpin market fundamentals in the Middle East as a conflict in Israel and Lebanon was reported Aug. 18, Israel Defence Forces announced via their official Telegram channel.

"Also, the market is relatively tight, inventories have dropped over the summer, prompt spreads are in backwardation... But of course, the market is always forward-looking so the balance certainly looks weaker," Rasmussen added.

With the end of the summer season nearing, players painted a sluggish outlook for global crude oil demand in the coming weeks as driving season comes to an end and jet fuel demand slows.

"More oil is coming to the market from OPEC+ and demand will slow down seasonally because we are past driving season, this will continue to add downward pressure for the next couple of weeks," Rasmussen added.

Concerns about China's economic performance also continued to weigh on global oil market fundamentals, with expectations of weaker domestic demand in China compounding the outlook for Asian refineries.

"China is slowing down and it seems like they aren't ready to add stimuli to kickstart the economy, notably oil demand has been on the weak side so I guess the China concern is really an underlying factor," Rasmussen said.

Meanwhile, the latest BoJ interest rate hike prompted an appreciation in the Japanese yen and thus weaker dollar/yen spreads.

"The yen has started to appreciate this morning, [...] the dollar-yen spread is dropping and that could weigh on risk appetites today," Rasmussen added.