Oil fell after an early-week surge on signs the Israel-Hamas war’s effect on flows will remain limited.

West Texas Intermediate dropped below US$84 after the New York Times reported that U.S. intelligence shows Iran was surprised by Hamas’s attack on Israel. That may reduce the chances of additional sanctions on Iranian oil and help prevent the nation and its proxies across the Middle East from being drawn into the conflict. Additionally, OPEC+ leader Saudi Arabia on Tuesday reiterated support for the group’s efforts to balance oil markets.

Prices are also falling due to a bearish technical move known as a gap fill, which was triggered when prices surged more than $3 on Monday as Hamas’s attack on Israel raised concerns about wider instability in the Middle East.

Such spikes often prompt corrective moves to fill the large break in prices before a new trend can be established, said Dennis Kissler, senior vice president for trading at BOK Financial Securities. Traders will continue to monitor the war and the possibility of more sanctions on Iran, which would be bullish for oil.

The war adds another complicated dimension to global oil trading after prices surged in the third quarter as OPEC+ choked off supplies to tighten the market, then gave up some gains as demand concerns flared up. The move by OPEC+ leaves the U.S. playing an increasingly vital role in supplying global markets, with the U.S. government projecting the nation’s oil output will rise to a record this year.

The US and Venezuela, meanwhile, are close to reaching an understanding that would bring limited sanctions relief in exchange for steps to ensure fair elections, according to people familiar with the matter. As part of the informal deal, the U.S. would be willing to lift some oil and banking sanctions.

Prices:

• WTI for November delivery traded 2.8 per cent lower at $83.56 a barrel at 2:24 p.m. in New York.
• Brent for December settlement fell 2.1 per cent to $85.84 a barrel.