Oil retreats following Israel-Lebanon truce

Brent crude’s price moved lower following the announcement of a US-brokered ceasefire deal between Israel and Lebanon.

IMAGE: Flags of Israel and Lebanon. Getty Images

The announcement has revived hopes of a lasting peace deal between Washington and Iran – a development that could reopen the Strait of Hormuz to commercial vessel traffic and ease some supply concerns in the global oil market.

Under the new agreement, Lebanon-based militant group Hezbollah will withdraw from southern Lebanon’s Litani Sector and cease attacks on Israel, while Israeli troops and the Lebanese government will work toward achieving a security framework.

Both sides have agreed to “swiftly advance the creation of pilot zones in which the Lebanese Armed Forces will take exclusive control of the territory to the exclusion of all non-state actors,” the US Department of State said in a statement.

The latest retreat in oil prices follow yesterday’s aggressive rally, as reports of a potential peace agreement collapsed and hostilities resumed.

Although the peace agreement lowers the risk of another flare-up, market participants remain wary of whether it will lead to any meaningful change regarding the security of the Strait of Hormuz.

“Iran has been adamant that any ceasefire with the US is dependent on a halt in fighting in Lebanon,” two analysts from ING Bank noted.

A previous truce deal between Israel and Lebanon in April failed to stabilise the region, as intermittent skirmishes persisted, undermining the impact of the US-led diplomatic efforts.

Despite the significant volatility seen in oil prices in recent months, the core market realities remain the same, according to analysts.

While the restoration of the Strait of Hormuz will offer some respite, the duration required for the oil market to recover from such prolonged disruption remains highly uncertain.

By Aparupa Mazumder

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