Oil prices fell in early trading on Thursday 29 October, giving back part of the previous day's sharp gains as traders weighed hopes for renewed peace talks against continuing fears about Middle East supplies.

Peace hopes pull against supply risk

Brent crude futures fell 82 cents, or 0.7%, to $114.50 a barrel by 0132 GMT, according to Reuters. US West Texas Intermediate futures fell about 0.9% to around $101.90. Both benchmarks had risen sharply on Wednesday, with WTI up about 3% on the day.

Houthi attacks keep the premium in place

The pullback came as reports of diplomatic contacts between Washington and Tehran gave traders a reason to trim some of the risk premium built into prices. At the same time, no agreement has been announced, and the underlying supply risks have not gone away. Traders remain sensitive to any sign that fighting could widen, to attacks on energy infrastructure, and to disruption on shipping routes through the Gulf. That sensitivity is why a single headline in either direction has been enough to move prices by a dollar or more in a session.

Yemen's Houthis attacked Aden airport on Wednesday, according to Yemeni government forces, after warning people to evacuate the facility. On Tuesday the group said it had hit Saudi Arabia's biggest oil refinery with a missile. Saudi authorities had not immediately confirmed the reported refinery strike, so that claim should be treated as unconfirmed. Even so, the threat to major production and refining assets in the world's second-largest crude producer is keeping a risk premium in oil prices, and markets are likely to stay volatile until there is a credible sign of de-escalation.

Sources: Reuters, Wall Street Journal.