Oil Prices Slip as Ceasefire in Gaza Reduces Risk Premium

Oil prices extended losses on Friday, retreating for a second consecutive session as geopolitical risk premiums faded following the announcement of a ceasefire agreement between Israel and Hamas — the first phase of U.S. President Donald Trump’s peace initiative to end the Gaza war.

By 10:16 GMT, Brent crude futures fell 66 cents (1%) to $64.56 per barrel, while U.S. West Texas Intermediate (WTI) declined 61 cents (1%) to $60.90 per barrel. Both benchmarks had dropped around 1.6% in the previous session but remain on course for modest weekly gains, with Brent up roughly 1% and WTI flat after steep declines last week.

Ceasefire Eases Geopolitical Tensions

The ceasefire agreement — ratified by Israel’s government on Friday — includes a partial withdrawal of Israeli forces from Gaza and the release of all hostages held by Hamas in exchange for hundreds of Palestinian prisoners. The truce marks a significant de-escalation after nearly two years of conflict that had fueled concerns over supply disruptions in the Middle East.

The announcement also eased fears of further maritime attacks in the Red Sea by Yemen’s Iran-aligned Houthi group, which has targeted vessels linked to Israel since 2023. The reduced geopolitical tension has diminished the immediate risk premium embedded in oil prices, prompting traders to shift focus back to supply fundamentals.

OPEC+ Output and Supply Outlook

Market attention is now turning to the broader supply outlook as the Organization of the Petroleum Exporting Countries and allies (OPEC+) proceeds with the gradual unwinding of production cuts.
According to Daniel Hynes, senior commodity strategist at ANZ, “the Gaza ceasefire deal means the focus can move back to the impending oil surplus,” though a smaller-than-expected November output hike agreed by OPEC+ has helped ease oversupply concerns for now.

Despite the ongoing rebalancing efforts, the market remains cautious amid signs of weaker demand growth, particularly from China and Europe, and the possibility of excess supply reemerging later this year.

Macroeconomic Risks and U.S. Shutdown Concerns

Beyond supply factors, macroeconomic uncertainty continues to weigh on sentiment. A prolonged U.S. government shutdown — now in its second week — has raised fears of a slowdown in the world’s largest oil consumer, potentially undermining demand for crude and refined products.

Meanwhile, stalled negotiations over a Ukraine peace deal earlier this week had briefly pushed prices to one-week highs, as the continuation of sanctions against Russia — the world’s second-largest oil exporter — suggested tighter supply could persist.

Outlook

Overall, analysts see near-term volatility in oil markets as the competing forces of geopolitical easing and supply rebalancing offset one another. With the Middle East risk premium fading, traders are likely to turn their focus toward OPEC+ production trends, U.S. inventory data, and global economic indicators to gauge the next direction for crude prices.