Oil Falls as Ceasefire in Israel-Hezbollah Conflict Reduces Risk Premium

Oil prices dipped in early Tuesday trading, continuing the declines from the previous session as investors assessed the potential for a ceasefire between Israel and Hezbollah, which diminished oil’s risk premium.

Brent crude futures dropped by 28 cents, or 0.38%, to $72.73 a barrel, while U.S. West Texas Intermediate crude was down by 32 cents, or 0.46%, at $68.62 a barrel. Both benchmarks lost $2 per barrel on Monday following reports that Israel and Lebanon had agreed to a deal to end the conflict with Hezbollah, prompting a selloff in crude oil.

ANZ analysts noted that a ceasefire in Lebanon reduces the chances of the incoming U.S. administration imposing severe sanctions on Iranian crude, which could affect global oil supplies. Iran, a supporter of Hezbollah, is an OPEC member producing around 3.2 million barrels per day, or 3% of global output. If President-elect Donald Trump were to reintroduce a maximum-pressure campaign against Tehran, Iranian exports could decrease by up to 1 million barrels per day, tightening the global crude market.

Meanwhile, in Europe, Ukraine’s capital, Kyiv, faced continued Russian drone attacks. The escalation between Russia, a major oil producer, and Ukraine intensified after the U.S. allowed Ukraine to use American-made weapons to target deep into Russian territory.

Additionally, OPEC+ may consider maintaining its current output cuts starting January 1, with Azerbaijan’s Energy Minister Parviz Shahbazov indicating that the group had already delayed planned production increases due to concerns over demand.

Trump also announced he would sign an executive order imposing a 25% tariff on all products from Mexico and Canada, although it was unclear whether this would apply to crude oil imports. Most of Canada’s 4 million barrels per day of crude exports go to the U.S., and analysts believe Trump is unlikely to target Canadian oil, given its unique characteristics that are not easily replaced by U.S. production.

Paraphrasing text from "Reuters" all rights reserved by the original author.