The price of oil dipped slightly to below $88 a barrel on Monday as a truce between Israel and the militant group Hamas in the Gaza Strip appeared to hold despite a confrontation late last week.
By around early afternoon in Europe, benchmark oil for January delivery was down 55 cents to $87.73 a barrel in electronic trading on the New York Mercantile Exchange. On Friday, the contract rose 90 cents to close at $88.28 a barrel on the Nymex after Israeli troops fired on crowds in Gaza surging toward a border fence, killing one Palestinian.
Prior to the shooting, oil prices had been falling, thanks mostly to optimism that the cease-fire agreement between the two sides would prevent a broader conflict in the region that could disrupt crude supplies. The truce was struck last Wednesday to end an eight-day Israeli offensive against Gaza militants who had fired rockets into Israel, but it remains fragile.
Traders were also keeping a close eye on developments in Egypt. The country's president, Mohammed Morsi, on Sunday moved to grant himself near-absolute power, sparking street clashes between his supporters and opponents.
"Although Egypt may not be an oil producer, it is nonetheless an important transit country for the oil trade on account of the Suez Canal and a number of pipelines," analysts from Commerzbank in Frankfurt wrote in a report. "If there were to be a prolonged phase of instability in Egypt, this could have ramifications for the entire region, which is responsible for producing 25 percent of the world's crude oil."
A possible deal for additional bailout funds for Greece at Monday's meeting of eurozone ministers could have some impact on markets, but analysts said the risks associated with the tense situation in the Middle East would likely limit gains even if a deal is reached.
Brent, which is used to set prices for many international varieties of oil, was down 43 cents to $110.95 a barrel.
Other futures on the New York Mercantile Exchange:
- Wholesale gasoline fell 0.58 cent to $2.7146 a gallon.
- Natural gas dropped 13.9 cents to $3.895 per 1,000 cubic feet.
- Heating oil was down 1.05 cents at $3.0755 a gallon.
Pamela Sampson in Bangkok contributed to this report.