Oil prices declined on Tuesday, continuing the downward trend from the previous session, as the potential for a ceasefire between Israel and Lebanon led traders to reduce the risk premium associated with crude oil. Additionally, a surge in the dollar—triggered by U.S. President-elect Donald Trump’s threats to impose import tariffs on China, Canada, and Mexico—further exerted downward pressure on oil prices.
Brent oil futures set to expire in January dropped by 0.3 percent to $72.80 per barrel, while West Texas Intermediate crude futures also fell by 0.3 percent, settling at $68.33 per barrel by 20:14 ET (01:14 GMT).
According to Reuters, U.S. President Joe Biden and French President Emmanuel Macron are expected to announce the ceasefire “imminently.” A ceasefire between Israel and Lebanon would signify a significant de-escalation in the protracted Middle Eastern conflict, reducing the likelihood of oil supply disruptions due to the ongoing tensions. Furthermore, reports indicate that Biden is advocating for a ceasefire in Gaza as well.
However, the prospect of the ceasefire has been complicated over the weekend, which somewhat undermined the optimism surrounding the ceasefire.
The risk premium on oil remains a concern, especially following heightened 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 added to uncertainties in the oil market.
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Dollar rises following Trump’s tariff threats
The dollar experienced a sharp increase on Tuesday, placing additional pressure on oil prices after Trump signaled a potential 10 percent trade tariff on China, citing concerns over the influx of illicit drugs into the U.S. Trump also threatened a 25 percent import tariff on both Mexico and Canada, accusing them of facilitating illegal immigration into the United States.
The dollar’s rise, driven by expectations of more U.S. protectionist measures, approached a two-year high, creating downward pressure on crude prices. A stronger dollar typically makes oil more expensive for international buyers, which can diminish demand. The prospect of higher tariffs on China—currently the largest oil importer in the world—also weighed on oil prices, suggesting potential economic strain on Beijing. Retaliatory tariffs from Beijing against U.S. goods could further escalate trade tensions between the two largest economies, potentially disrupting global trade flows.
Oil prices fell on Monday after a significant 6 percent increase the week prior, yet remained near a two-week high amid growing geopolitical tensions between Western nations and major oil producers like Russia and Iran, which raised concerns about possible supply disruptions. As of 6:40 GMT, Brent crude futures dipped 0.67 percent to $74.67 per barrel, while U.S. West Texas Intermediate crude futures decreased by 0.74 percent to $70.71 per barrel.
Escalating Ukraine-Russia tensions heighten supply concerns
Last week, both oil contracts recorded 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 strikes using Western weaponry. As the new week began, 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 fueled speculation regarding the potential for a broader conflict that could disrupt oil supplies. Analysts observe 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 in the $70-$80 range.
Iran activates advanced centrifuges
In response to a resolution passed by the UN’s International Atomic Energy Agency (IAEA), Iran has announced measures that include activating several new and advanced centrifuges for uranium enrichment. According to state news agency IRNA, Iran plans to activate ““a noticeable number of new and advanced centrifuges of different types,” per a joint statement from Iran’s foreign ministry and its Atomic Energy Organization. The statement emphasized that these actions are intended to safeguard the nation’s interests and further develop its peaceful nuclear energy capabilities, in accordance with national needs and rights.
The IAEA’s disapproval, coupled with Iran’s actions, increases the likelihood that Trump will seek to enforce sanctions against Iran’s oil exports upon taking office, a move that could elevate oil prices. Such sanctions could potentially curtail approximately one million barrels per day of Iran’s oil exports, accounting for about 1 percent of the global oil supply. The Iranian foreign ministry has indicated that discussions regarding its disputed nuclear program will take place with three European powers on November 29.
Rising demand in China and India
Investor attention is also focused on the increasing demand for crude oil in China and India, the world’s largest and third-largest importers, respectively. China’s crude imports showed a rebound in November as lower prices spurred stockpiling, while Indian refiners raised crude throughput by 3 percent to 5.04 million barrels per day in October, driven by fuel export needs.
This week, traders will be closely monitoring U.S. personal consumption expenditures (PCE) data set to be released on Wednesday, as it is likely to influence the Federal Reserve’s policy meeting scheduled for December 17-18.
