Investing.com -- Oil prices fell Monday as diplomatic efforts to contain the conflict between Israel and Hamas intensified, although tensions remained high as Israel continued to bombard the Gaza enclave.
By 09:15 ET (13.15 GMT), the U.S. crude futures traded 1.2% lower at $87.06 a barrel, while the Brent contract dropped 0.9% to $91.32.
Diplomacy increases over Gaza conflict
Both benchmarks recorded gains of more than 1% last week for a second consecutive week, on fears of potential supply disruption if the Israel-Hamas war grows into a wider conflict in the Middle East, the world's biggest oil-supplying region.
However, Israel has so far held off launching a ground assault on Gaza, even though it has kept up its aerial bombardment, providing time to negotiate a release of more hostages as well as creating a window for diplomacy.
Hamas released two U.S. hostages from Gaza late last week.
U.S. President Joe Biden visited Israel last week, and the leaders of France and the Netherlands will visit this week in search of a solution for the conflict.
“Price direction in the oil market continues to be dictated by developments in the Middle East with concerns over the potential for the Israel-Hamas conflict to spread,” analysts at ING said, in a note. “This morning prices have trended lower with Israel’s ground operation into Gaza appearing to have been delayed.”
Brent net long positions increase
Despite today’s retreat, the oil market remains well supported by a tight supply situation given the hefty cuts to output announced by both Saudi Arabia and Russia earlier in the year.
Additionally, data released Monday showed that Norway's crude production fell to 1.64 million barrels per day in September, down from 1.79 million barrels in August and below forecasts of 1.73 million barrels.
With this in mind, and given the geopolitical tensions in the Middle East, it’s not surprising that speculators boosted their net long positions in the ICE Brent contract over the last reporting week.
The net long increased by 74,288 lots to 227,462 lots as of last Tuesday, which is the largest weekly increase since December 2016.
“The move was predominantly driven by fresh buying with the gross long increasing by 45,089 lots, whilst there was also a fair amount of short covering with the gross short declining by 29,199 lots over the reporting week,” ING added.
Chevron to buy Hess for $53 billion
In corporate news, Chevron (NYSE:CVX), the second largest U.S. oil and gas producer, announced Monday a plan to buy U.S. rival Hess (NYSE:HES) for $53 billion.
This follows larger rival Exxon (NYSE:XOM)'s deals since July for top U.S. shale producer Pioneer Natural Resources (NYSE:PXD) and Denbury, and reflects a desire for oil and gas assets in a world seeking lower-risk future fossil supplies and higher shareholder returns.
Additionally, the International Energy Agency will release its World Energy Outlook on Tuesday, which will likely cover long term energy supply and demand trends.