Crude futures traded near the highest level in two days in New York amid concern that a cease-fire between Israel and Hamas may not hold, putting at risk supply from the Middle East.
West Texas Intermediate oil fell 0.3 percent after a cease-fire crafted yesterday by Egypt and the U.S. halted eight days of aerial assaults that ravaged the Gaza Strip and made Tel Aviv a missile target. Floor trading in New York is closed today because of the Thanksgiving holiday. A Chinese manufacturing index signaled the first expansion in 13 months.
“There’s the potential for future price gains due to the shaky nature of the truce in Israel,” Harry Tchilinguirian, BNP Paribas SA’s head of commodity markets strategy in London, said by phone. “We aren’t going to see much today with the U.S. closed and low volumes.”
Crude for January delivery dropped 24 cents to $87.14 a barrel in electronic trading on the New York Mercantile Exchange. The contract climbed 63 cents yesterday to $87.38, the highest close since Nov. 19. Prices are down 12 percent this year. Today’s transactions will be booked with tomorrow’s trades for settlement purposes. Electronic trading was halted at 1:15 p.m. and will resume at 6 p.m.
Brent for January settlement slid 31 cents to $110.55 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude was at a premium of $23.41 to New York-traded West Texas Intermediate grade. The spread widened for a third day yesterday to $23.48.
“There’s some skepticism on whether the cease-fire will hold and that’s causing near-month prices to sort of bobble up and down a bit,” Judith Dwarkin, chief energy economist at ITG Investment Research Inc. in Calgary, said by phone.
Hamas and Israel are seeking to solidify the cease-fire which took effect at 9 p.m. local time yesterday and was announced by Egyptian Foreign Minister Mohamed Amr and U.S. Secretary of State Hillary Clinton.
Israeli leaders have said that all options, including a military strike, are justified to counter Iran’s nuclear program, which they describe as an existential threat. Iran is the fifth-largest oil producer in the Organization of Petroleum Exporting Countries, data compiled by Bloomberg show.
“Given the supply risks from the Middle East, I don’t really think prices will be going down further,” said Tetsu Emori, a chief fund manager at Astmax Investment Management Inc. in Tokyo who predicts Brent crude will trade at about $120 to $125 a barrel by the end of the year.
The Chinese manufacturing index added to signs that economic growth is rebounding after a seven-quarter slowdown.
The preliminary reading was 50.4 for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. It compares with a final level of 49.5 for October. A reading above 50 indicates expansion.
“China has been providing good fundamentals, and if the economy moves to a higher level, they need oil,” said Emori.
Oil’s advance in New York may stall around $89.50 a barrel, along the top of a downward-sloping trend channel on the daily chart, according to data compiled by Bloomberg. Futures halted a rally this week in this channel, which goes back about two months. Sell orders tend to be clustered near technical-resistance levels.