Oil ends lower on Israel-Hamas cease-fire talks, Canada's Trans Mountain pipeline expansion

By Myra P. Saefong

Natural-gas futures settle nearly 6% higher Monday

Oil futures declined on Monday, with U.S. prices settling at their lowest in about a month, as efforts to broker a cease-fire between Israel and Hamas helped to ease concerns over potential supply disruptions in the region.

Reports that Canada's Trans Mountain pipeline-expansion project is poised to start partial operations this week - and eventually transport more than half a million barrels of oil from Alberta to the country's Pacific Coast - also pressured prices, an analyst said.

Price moves

West Texas Intermediate crude CL00 for June delivery CL.1 CLM24 fell $1.22, or 1.5%, to settle at $82.63 a barrel on the New York Mercantile Exchange. That was the lowest settlement for WTI front-month futures since March 27, according to Dow Jones Market Data. June Brent BRNM24, the global benchmark, lost $1,10, or 1.2%, to finish at $88.40 a barrel on ICE Futures Europe, ahead of the contract's expiration at the end of Tuesday's session. July Brent BRN00 BRNN24, the most actively traded contract, declined by $1.01, or 1.1%, at $87.20 a barrel.May gasoline RBK24 shed 0.6% to $2.75 a gallon, while May heating oil HOK24 fell 0.7% to $2.53 a gallon. The May contracts expire at the conclusion of Tuesday's trading session.Natural gas for June delivery NGM24 settled at $2.03 per million British thermal units, up 5.6%.

Middle East and other market developments

On the supply side, "political tensions in the Middle East may have eased for now but could flare up again any time without notice," Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch.

The White House on Sunday said U.S. President Joe Biden had again spoken with Israeli Prime Minister Benjamin Netanyahu as pressure builds on Israel and Hamas to reach a deal that would free some Israeli hostages and bring a cease-fire in the nearly seven-month war in Gaza.

On Monday, U.S. Secretary of State Antony Blinken pressured Hamas to accept the latest proposal, calling it "extraordinarily generous."

Oil traders are trying to determine whether a push by Blinken to convince Hamas to release hostages in return for a cease-fire will bear any fruit, said Phil Flynn, senior market analyst at the Price Futures Group.

For now, the market has seen "some easing of risk premium as the threat of a direct confrontation between Israel and Iran has gone away," he said in daily commentary. Still, "the ongoing drama in the continuing risk of supply against what should be record-breaking demand is going to keep the market well supported."

Meanwhile, economic data has undercut expectations for a series of Federal Reserve rate cuts in 2024 and heightened fears over a potential "stagflation" scenario of sluggish growth and sticky inflation.

The Federal Reserve on Wednesday is expected to leave rates unchanged but to signal that they're unlikely to come down until policy makers are confident inflation is on a sustainable downward path.

See: Stocks risk a wild week with Big Tech earnings, Fed's face-off with inflation

Despite the recent correction in oil, Cieszynski said that the fact that prices have held well above $80 suggests that "investors have a strong outlook for demand, which may come from continued strength in the North American economy and a resurgence in China."

Bucking the downtrend in the energy market Monday, natural-gas futures finished sharply higher.

Prices for the fuel rebounded after recent losses, "supported by soft production and signs of strengthening export demand," said Victoria Dircksen, commodity analyst at Schneider Electric. Feedgas flows to the Freeport LNG export terminal in Texas saw an uptick over the weekend, indicating some recovery from a recent outage, she said.

Canada's pipeline expansion

The oil market was also beginning to price in reports of the expected start of partial operation for Canada's Trans Mountain pipeline expansion project, known as TMX, Flynn said in comments to MarketWatch Monday.

The pipeline, which is set to start partial operation on May 1, is expected to ship an extra 590,000 barrels per day from Alberta to Canada's Pacific Coast, according to a report from Reuters.

The oil that's expected to come out of Canada is going to be a heavier grade of crude, so "it's not a direct competitor of WTI or shale oil," said Flynn.

The price of the Canadian oil should increase, because Canada is going to be able to get it out into the marketplace, and there will be more supply in the market, which could put pressure on all grades of crude - at least temporarily, he said.

Associated Press contributed.

-Myra P. Saefong

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04-29-24 1541ET

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