Oil prices retreat as Israel-Lebanon ceasefire hinges on Hezbollah

Oil prices fell after gaining for three days as Israel and Lebanon agreed to a ceasefire on the grounds that Hezbollah stops its hostilities as well.

Brent fell below $97 a barrel while West Texas Intermediate was close to $96 a barrel.

The deal is contingent on “a complete cessation” of fire from Iran-backed Hezbollah, according to a statement from both countries and the US.

While Washington and Tehran have agreed on a rough framework to extend their truce by two months and reopen the Strait of Hormuz, negotiations over the final details are dragging on, and there’s also been a flare-up in fighting. “No tangible progress has been achieved” in the talks, and Iran is prepared to target objectives inside Israel if its attacks on Beirut continue, the semi-official Tasnim news agency reported the Islamic Republic’s foreign minister as saying.

Oil has erased last week’s drop as the clashes sapped optimism over a deal to extend the current ceasefire, and potentially see flows resume through the strait. As negotiations drag on, the world’s supply cushion is rapidly running out. US government data on Wednesday showed crude stocks at Cushing, Oklahoma, the delivery point for WTI, fell for a sixth week to near what is known as the minimum operating level.

US President Donald Trump said the Strait of Hormuz would open “immediately” upon Iran signing a memorandum of understanding to cease armed hostilities “subject to a couple of areas being cleaned out, also of mines.” He downplayed the threat of mines in the strait to commercial shipping.

The oil market’s main focus remains the key waterway, through which one-fifth of global crude normally passes. The effective paralysis of the chokepoint under a double blockade by Tehran and Washington has sent fuel prices higher, as vessel movements remain limited.

Meanwhile, the Republican-led House voted to halt the US war with Iran, showing that worries over the conflict are spreading in the president’s own party five months before mid-term elections. The ballot won’t end American military attacks on the Islamic Republic, as the Senate would still have to pass the resolution and provisions in the 1973 War Powers Act that the House invoked are legally controversial anyway.

With inputs from Bloomberg