Oil prices fall after Russia-Ukraine energy facility attack truce

Oil prices dropped on Monday as traders anticipated increased Russian energy supplies following a reported agreement between Ukraine and Russia to cease attacks on each other's energy facilities. Brent crude futures fell 11 cents, or 0.11%, to $104.61 a barrel, while US West Texas Intermediate crude dipped 49 cents, or 0.53%, to $91.36 a barrel. Both benchmarks experienced a decline of over 1% earlier in the session. ICE gasoil futures also dropped 3% to $1,436 per metric ton.

Trump had previously announced that Russia would immediately supply over 300,000 metric tons of diesel to US and global markets, with additional deliveries of 500,000 tons in November and another 1 million tons shortly thereafter. The International Energy Agency estimated daily global diesel consumption to be nearly 29 million barrels.

However, Ukrainian President Zelenskiy expressed uncertainty about the details of the energy ceasefire, and Russia remained unresponsive. Analysts noted that while the ceasefire announcements alleviated some immediate supply pressures, questions lingered regarding its validity and extent of impact. Fatih Birol, the Executive Director of the IEA, suggested that countries should evaluate the need for additional diesel releases, prioritizing those who had not yet fulfilled their pledged volumes.

Despite the ceasefire, the Middle East conflict continued to weigh on Brent crude prices above $100 a barrel. The Houthis claimed responsibility for attacks on Riyadh's international airport, killing 13 and injuring over 300. Saudi officials reported injuries in a new airport attack on Sunday. The US was reportedly considering joining Saudi Arabia's strikes on the Houthis, stemming from the February launch of a joint US-Israeli offensive against Iran.

Additionally, reports emerged of recent attacks on tankers in the Strait of Hormuz, threatening to hinder a recovery in Middle East crude exports. Analysts raised the forecast for Brent crude prices for December to $90 a barrel, up from $85, while maintaining a base case that adaptation of Middle East supply would eventually reduce crude oil prices. However, the possibility of renewed escalation posed significant net upside risk, with Goldman Sachs estimating a risk premium of just over $20 a barrel.