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Oil down another 2% on Europe woes, Israel pause on Gaza ground assault - Investors who rushed into oil thinking it could be a hedge to the Israel-Hamas war are beginning to find out that black gold isn’t quite the haven that gold itself is reputed to be.

Crude prices tumbled another 2% Tuesday, adding to the previous session’s 3% rout, wiping out a chunk of the gains from the past two weeks derived from the Middle East’s latest conflict.

New York-traded West Texas Intermediate, or WTI, crude for December delivery, settled at $83.74, down $1.75, or 2% on the day. On Monday, WTI fell 2.9%.

The US crude benchmark rose 2% last week and around 6% the prior week. Tuesday’s session low was $82.97, putting it not too far from the two-month low of $81.50 struck on Oct. 6, a day before the outbreak of fighting in Gaza.

UK-origin Brent crude for December delivery settled at $88.07, down $1.76, or nearly 2%. Brent fell 2.5% in the prior session.

Last week, the global crude benchmark rose 1.4%, adding to the prior week’s gain of 7.5%. Tuesday’s session low for Brent was $87.36.

Oil’s rally over the past two weeks was driven by global shock over the death toll emanating from Israel’s response to the Oct 7 attacks carried out by Hamas, and concerns of a contagion should the crisis spill over and impact neighboring countries, which include some of the biggest oil producers such as Saudi Arabia, the United Arab Emirates, Iraq and Kuwait.

Conversely, the market’s retreat comes amid diplomacy efforts by the United States and other world powers in convincing Israel to delay a ground assault on Gaza while they try and negotiate the release of an estimated 200 Israeli hostages being held by the Palestine militant group.

Adding to Wednesday’s bearish mood in oil was dire economic data out of Europe. German readings suggested a recession was underway. Britain's businesses reported another monthly decline in activity, highlighting recession risks ahead of the Bank of England's interest rate decision next week.

“I think it’s beginning to dawn on some people that you can’t put black gold and gold in the same bucket when looking for a hedge to this war,” John Kilduff, partner at New York energy hedge Again Capital, said, using popular market parlance to refer to oil.

“The crux of the matter is that oil is a commodity that derives its net worth from consumption by demand. Gold, on the other hand, is more of an insurance against economic and political troubles like these. There’s been no direct impact thus far on the oil trade from the crisis and, therefore, it’s only right that crude prices give back the gains they’ve been running up the past two weeks.”

Gold hit three-month highs last week as investors sought a hedge to the war, with New York traded futures breaching $2,000 an ounce. It has eased since from those highs but remains largely in a bull market, technical charts show.

US weekly oil inventory estimates awaited

Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.

The API will release at approximately 16:30 ET (21:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Oct 20. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by expect the EIA to report a crude stockpile drop of 0.55M barrels, to add to the 4.491M-barrel reduction reported during the week to Oct 13.

On the gasoline inventory front, the consensus is for a draw of 0.1M barrels over the 2.371M-barrel decline in the previous week. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With distillate stockpiles, the expectation is for a drop of 1M barrels versus the prior week’s deficit of 3.185M. Distillates are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets.

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