Oil prices fell slightly on Wednesday, extending recent losses after Israel agreed to a ceasefire with Lebanon, which presented a smaller risk premium for crude. But losses in oil were limited by industry data showing an unexpected, substantial draw in U.S. oil inventories, spurring some bets on tighter supply conditions.
Brent oil futures expiring in January fell 0.2 percent to $72.70 a barrel, while West Texas Intermediate crude futures fell 0.2 percent to $68.30 a barrel by 20:47 ET (01:47 GMT).
Losses in crude were also tempered by a Reuters report that the Organization of Petroleum Exporting Countries and allies (OPEC+) was considering a further delay in plans to increase production. The recent downward trend after Israel reached a ceasefire agreement with Lebanon, which reduced the risk premium associated with crude oil. However, the losses were somewhat mitigated by industry data indicating an unexpected and significant reduction in U.S. oil inventories, which sparked speculation about tighter supply conditions.
Brent crude futures for January delivery fell by 0.2 percent to $72.70 a barrel, while West Texas Intermediate (WTI) crude futures also decreased by 0.2 percent, reaching $68.30 a barrel by 20:47 ET (01:47 GMT). The decline in oil prices was further restrained by a report from Reuters stating that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) were contemplating a delay in their plans to boost production. The cartel is scheduled to convene on December 1.
U.S. oil inventories unexpectedly decline
Data from the American Petroleum Institute (API) released on Tuesday revealed a surprising drop in U.S. oil inventories, which decreased by nearly 6 million barrels for the week ending November 22. Analysts had anticipated an increase of 0.25 million barrels following a significant build of 4.75 million barrels the previous week. This unexpected decrease bolstered optimism that U.S. fuel demand remains robust, potentially tightening oil supplies in the months ahead. The API’s data often precedes a similar report from the government, which is expected later on Wednesday.
Read more: Oil prices plunge amid ceasefire hopes, dollar surge
Oil prices pressured by ceasefire developments
In the last two trading sessions, oil prices have decreased following initial media reports suggesting a potential ceasefire between Israel and Hezbollah. This agreement marks a de-escalation in the Middle East conflict after 13 months of intense fighting, although tensions between Israel and Hamas in Gaza are expected to persist. Despite this, oil prices still retained some risk premium due to the recent escalation in the Russia-Ukraine conflict, which raised concerns about possible disruptions to Moscow’s crude output.
On Tuesday, oil prices continued their decline, driven by the potential for a ceasefire between Israel and Lebanon, prompting traders to lower the risk premium linked to crude oil. Additionally, a surge in the dollar—sparked by U.S. President-elect Donald Trump’s threats to impose import tariffs on China, Canada, and Mexico—further pressured oil prices. Brent futures for January dropped by 0.3 percent to $72.80 per barrel, while WTI futures fell by 0.3 percent to $68.33 per barrel by 20:14 ET (01:14 GMT).
Ongoing concerns over oil risk premium
The risk premium on oil remains a pressing issue, particularly in light of the escalating tensions between Russia and Ukraine over the past week. Moscow’s threats of nuclear retaliation in response to Kyiv’s use of Western-supplied long-range missiles have intensified uncertainties in the oil market.
Dollar strengthens amid tariff threats
The dollar saw a significant rise on Tuesday, adding further downward pressure on oil prices after Trump indicated a potential 10 percent trade tariff on China, citing concerns over the influx of illicit drugs into the U.S. He also threatened a 25 percent import tariff on Mexico and Canada, accusing them of contributing to illegal immigration into the United States. The dollar’s ascent, spurred by expectations of increased U.S. protectionist measures, approached a two-year high, exerting additional downward pressure on crude prices. A stronger dollar generally makes oil more expensive for international buyers, which can dampen demand. The prospect of higher tariffs on China—the world’s largest oil importer—also weighed on oil prices, raising concerns about potential economic strain on Beijing. Retaliatory measures from China against U.S. goods could further escalate trade tensions between the two largest economies, potentially disrupting global trade flows.
Recent price movements
Oil prices declined on Monday following a notable 6 percent increase the previous week, yet they remained close to a two-week high amid rising geopolitical tensions between Western nations and major oil producers like Russia and Iran, which heightened concerns about potential supply disruptions. As of 6:40 GMT, Brent crude futures fell by 0.67 percent to $74.67 per barrel, while U.S. WTI crude futures decreased by 0.74 percent to $70.71 per barrel.
Heightened supply concerns from Ukraine-Russia tensions
Last week, both oil contracts achieved their largest weekly gains since late September, reaching their highest settlement points since November 7, following Russia’s launch of a hypersonic missile at Ukraine as a warning to the U.S. and U.K. in response to Kyiv’s use of Western weaponry. As the new week commenced, oil prices eased slightly as market participants awaited further developments in the geopolitical landscape and insights into the Federal Reserve’s policy direction.
The recently escalated tensions between Ukraine and Russia have intensified speculation about the potential for a broader conflict that could disrupt oil supplies. Analysts note that both Ukraine and Russia are seeking leverage ahead of potential negotiations under a Trump administration, suggesting that these tensions may persist into the end of the year, keeping Brent prices stable within the $70-$80 range.
