The price of a barrel of oil dropped half a dollar to below 31 dollars on Thursday morning after Israel and the Palestinian Authority struck a truce aimed at ending more than a month of bloodshed.
The Brent benchmark North Sea crude fell to 30.87 dollars a barrel from 31.31 at the close on Wednesday.
Dealers said the price drop was a result of the Middle East deal, which had reduced further the risk of an all-out regional standoff, which could have threatened crucial oil supplies.
"The market is down due to the agreement between Israel and the Palestinians," said a dealer with the Credit Lyonnais Rouse brokerage. But he added that any future deterioration in the situation would send prices spiraling back up.
The Middle East crisis has compounded an already tight oil market, in which reserves are extremely low ahead of the winter season. Prices soared last month to 10-year high points above 35 dollars a barrel as Israel and the Palestinians moved to the brink of all-out war.
A particularly cold winter would herald another price spike, dealers say, but conversely a mild season would drag down prices.
"Traders are waiting to see how the weather is the northern hemisphere," said the Credit Lyonnais Rouse dealer. "If the weather is not too cold, the prices will be heading down three or four dollars during the winter."
One of the world's largest oil companies, Royal Dutch/Shell added to the downbeat tone by saying that prices would likely fall next year because of recent production increases by "key oil exporting countries".
"If the further production increases implemented by these countries in October are sustained, oil stocks can be expected to build once the winter demand has passed, so causing downward pressure on crude prices next year," it said in a statement.
The Organization of Petroleum Exporting Countries (OPEC) raised output by 800,000 barrels a day in October and agreed another 500,000-barrel hike earlier this week in an attempt to bear down on prices -- LONDON (AFP)
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