Seoul: Oil fell as Saudi Arabia moved to impose a partial ceasefire in Yemen, bringing hope of easing tensions in the Middle East.

Futures declined as much as 2.9 per cent in New York, erasing all the gains made since attacks on Saudi Arabia earlier this month. The Saudis have agreed to a limited ceasefire in several areas of Yemen including the capital Sana’a, which is controlled by Iran-backed Houthi rebels, a Yemeni government official said.

Prices had already been falling this week as Saudi Arabia ramped up oil output following the September 14 attacks on its energy infrastructure. The kingdom is pumping more than 8 million barrels a day after bringing back production at Khurais and Abqaiq, according to people familiar with the matter. The price drop also reflects a deepening manufacturing slump in Germany, more signs of economic weakness in China and rising crude stockpiles in the US.

West Texas Intermediate for November delivery declined 85 cents to $55.56 a barrel on the New York Mercantile Exchange at 9:32am local time. It earlier slumped to as low as $54.75.

Brent for the same month dropped $1.23, or 2 per cent, to $61.51 a barrel on the ICE Futures Europe Exchange, and traded at a $6.08 premium to WTI.

Following a ceasefire, “we should return to $60 as we are back to focusing only on growth and demand worries,” said Ole Hansen, head of commodities strategy at Saxo Bank.

The partial ceasefire will likely help to cool political tensions in the region, after the attacks on Saudi infrastructure knocked out 5 per cent of global production and prompted a US plan to send more troops to the region. Yet President Donald Trump on Friday responded to speculation on the potential removal of Iranian sanctions, saying he told the country “No!” to lifting penalties.

The US, Saudi Arabia and major European powers have all blamed Iran for the oil attacks, though Tehran has denied the allegations. Houthi rebels have claimed responsibility.