Oil rallied as Israeli Prime Minister Benjamin Netanyahu’s dismissal of a potential cease-fire in the Israel-Hamas war triggered algorithmic buying in markets. 

West Texas Intermediate rose as much as 3.2 per cent to top US$76 a barrel in a rally partly sparked by Netanyahu’s comments that he sees “no other solution than total victory” and later extended by trend-following algorithms. Last week, crude slumped on news of cease-fire negotiations and their potential to ease the tensions in a region that accounts for about a third of the world’s oil output. 

Rising energy supply risks from strikes in Iraq increase the risk of a broadening conflict in the Middle East and are providing tailwinds for crude oil markets, said Daniel Ghali, a commodity strategist at TD Securities. At the beginning of the session, Ghali expected commodity trading advisers to increase their total buying by 30 per cent of their maximum position. 

Adding to concerns of supply disruptions, major shipping companies are warning that the security situation in the Red Sea is continuing to deteriorate. Swaths of the merchant fleet have been avoiding the waterway since attacks by the Houthis began in mid-November. The area grew even more volatile after the U.S. and U.K. launched airstrikes in the middle of last month, prompting major owners in all sectors to avoid the region. 

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Signs of crude’s strength also showed further along the futures curve, with Brent’s prompt spread — the difference between its two nearest contracts — trading 54 cents in backwardation, up 26 cents from last week.

Restraining the price gains are apparent sluggishness in the Chinese economy and fading expectations that interest rates will be cut soon. Volatility in options markets has been sliding, reflecting the generally lackluster trading this year, despite the barrage of geopolitical and macroeconomic headlines. 

“Both oil-market sentiment and conviction remain low,” Royal Bank of Canada analysts including Michael Tran and Helima Croft wrote in a note. “The market still cannot break flat price out of the current range.”

Prices:

  • WTI for March delivery rose $2.09 to $75.95 a barrel at 1:43 p.m. in New York.
  • Brent for April settlement added $2.16 to $81.37 a barrel.