Oil prices experienced a significant decline on Monday, marking the largest drop in over two weeks, as signs emerged that Israel is contemplating delaying a potential invasion of Gaza. This development has temporarily contained the ongoing conflict in the Middle East.

The West Texas Intermediate settled below $86 a barrel after a volatile trading session, witnessing a 2.9% decrease, the sharpest decline since the recent attack on Israel by Hamas. Israel's anticipated ground offensive into the Gaza Strip seems to have been put on hold to allow time for the release of hostages. In addition, a group of 27 European Union leaders is planning to endorse a "humanitarian pause" in order to distribute aid in Gaza.

Analysts from JPMorgan Chase & Co., including Natasha Kaneva, stated in a client note that Brent prices are currently inflated by approximately $7 a barrel. However, this premium is deemed "appropriate" considering the current market uncertainty. According to Kaneva, except for the Yom Kippur War of 1973, none of the other ten major military conflicts involving Israel since 1967 had a lasting impact on crude oil prices.

Kaneva further added, "Even if the fighting spreads beyond Israel and the Palestinian territories, it is unlikely to result in a prolonged oil price spike." While oil prices have increased since the attack on Israel, concerns about the conflict involving other countries have been mitigated by a lack of immediate disruptions. The Middle East accounts for around a third of global crude supply, and potential risks include heightened compliance checks on sanctioned Iranian oil by Washington and Tehran's possible interference with key shipping routes.

A report by Royal Bank of Canada analysts, including Michael Tran and Helima Croft, highlighted the significant asymmetric upside to oil prices in the near term if the Israel-Hamas war escalates into a larger regional conflict.

However, the prospect of increased Venezuelan crude exports has partly offset the risk premium associated with the war. Last week, the U.S. initiated steps to ease its sanctions policy, leading to the reopening of trade channels. Chevron Corp., Rosneft PJSC, and Repsol SA are among the companies expected to benefit from this shift.

In other developments within the crude oil market, Chevron recently agreed to acquire Hess Corp. for a whopping $53 billion. This move will provide Chevron with a 30% stake in more than 11 billion barrels-equivalent of recoverable resources in Guyana, making it a significant player in one of the world's prominent new oil-producing regions. It will also grant Chevron access to acreage in the Gulf of Mexico and the Bakken shale basin.

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Overall, the delay in the potential Gaza invasion by Israel has had a calming effect on the Middle East crisis, with oil prices experiencing a significant decline. However, the experts remain cautiously optimistic, recognizing the possibility of an escalation in the conflict and its potential impact on global energy markets.