The front-month contract for Brent crude North Sea oil was last seen down USD 0.29 at USD 81.90/bbl, while the WTI equivalent was USD 0.23 lower at USD 76.61/bbl.
“Crude oil rallied last week as the prospect of a ceasefire agreement in Gaza diminished,” said Australia’s ANZ bank in a note.
“Israel’s prime minister, Benjamin Netanyahu, said that he sees no other solution than total victory, following a counterproposal from Hamas for a hostage and ceasefire agreement.
“He also ordered another military push in southern Gaza, raising the risk of an escalation in the conflict,” it added, with a series of airstrikes having hit Rafah earlier today.
“Israeli military actions in the Gaza Strip, especially the bombing of Rafah, heightened market concerns,” said James Hyerczyk of FX Empire.
“The rejection of a ceasefire with Hamas and the ongoing hostilities indicate that the market may have previously undervalued the impact of regional instability on oil prices,” he added.
Red Sea risks
Risks had separately been “magnified” as Houthi rebels recently increased their attacks on merchant ships in the Red Sea, ANZ added.
The Iran-backed rebels have been attacking vessels traversing the key commodity transit route since November.
The recently bullish sentiment in the oil market had been separately reinforced by “positive fundamentals”, said ANZ, pointing to a recent drop in US gasoline inventories, signalling strong demand.
Total US motor gasoline stockpiles fell by 3.1m barrels in the week ended 2 February, standing at about 1% below the five-year average, the US Energy Information Administration said last week.
US commercial crude oil inventories, meanwhile rose but remained around 4% below the five-year average for this time of year.