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Crude had jumped 3% on Friday after Israel stepped up ground
incursions into Gaza, stoking worries the conflict could expand
in a region that accounts for a third of global oil output.
However, that concern was fading on Monday, analysts said.
"There is a propensity for market users in all their guises to
have at least some oil length going into the weekends and when
the fear of conflict spread shows no validation come the early
hours of Monday mornings' openings, that fear hedge is
ordinarily unwound," said John Evans of oil broker PVM.
Brent crude futures dropped $1.39, or 1.5%, to $89.09 a barrel
by 0911 GMT, while U.S. West Texas Intermediate crude was down
$1.63, or 1.9%, at $83.91.
"Despite an escalation in the Hamas-Israel war, the ground
invasion was widely expected," said CMC Markets analyst Tina
Teng. "The weekend playout signals no further expansion into a
wider regional war, which caused a retreat in oil prices."
On Monday, Palestinians in northern Gaza reported fierce air and
artillery strikes as Israeli troops backed by tanks pressed into
the enclave with a ground assault that spurred more
international calls to protect civilians.
As well as the Middle East, investors are focused on the outcome
of Wednesday's Federal Reserve meeting as well as on what
earnings from the likes of tech giant Apple Inc might indicate
regarding the prospects for economic slowdown.
The Fed is widely expected to keep interest rates unchanged,
while the central banks of Britain and Japan are also set to
review their policies.
China reports its October manufacturing and services PMIs this
week, with investors looking out for more signs that the economy
of the world's top crude importer is stabilising.
(Additional reporting by Mohi Narayan and Florence Tan; editing
by Jason Neely)
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