Oil prices rose slightly in early trading on Tuesday after falling in the previous session as investors discussed a possible ceasefire between Israel and Hezbollah, weighing on oil’s risk premium.
Brent crude futures rose 15 cents, or 0.21%, to $73.16 a barrel by 0705 GMT, while WTI crude futures rose 15 cents, or 0.22%, to $69.09 a barrel.
On Monday, both indexes fell $2 a barrel after reports that Lebanon and Israel had agreed on terms for a deal to end the Israel-Hezbollah conflict.
News of the ceasefire triggered a sell-off in crude oil, prompting a sharp market reaction.
While the development has allayed fears of a Middle East supply disruption, the Israel-Hamas conflict has not significantly disrupted supply this year in a way that would actually trigger war premiums.
Oil prices’ vulnerability to geopolitical headlines lacks fundamental support and, combined with the failure to sustain recent gains, reflects weakening global oil demand and suggests a volatile market ahead.
Iran, which supports Hezbollah, is a major OPEC member with an output of about 3.2 million bpd, or 3% of global production. A ceasefire in Lebanon would reduce the likelihood that the incoming US administration would impose tough sanctions on Iranian crude.
However, according to analysts, Iranian exports would fall by 1 million bpd and global crude flows would tighten if the Trump administration returns to its maximum pressure campaign on Tehran.
The Ukrainian capital Kiev is reportedly under sustained Russian drone attack.
Hostilities between major oil producer Russia and Ukraine have intensified this month after U.S. President Joe Biden allowed Ukraine to use U.S.-made weapons to invade deep into Russia, marking a major reversal of Washington’s policy on the Ukraine-Russia conflict.
OPEC+ may consider leaving current oil production cuts in place as of Jan. 1 at its next meeting on Sunday.
On Monday, Trump said he would sign an executive order imposing a 25% tariff on all products coming into the U.S. from Mexico and Canada.
It is unclear whether that would include crude. The vast majority of Canada’s 4 million bpd of crude exports go to the U.S. Analysts said Trump is unlikely to impose tariffs on Canadian oil, which is not easily replaced because it differs from U.S.-produced grades.
Trump’s proposed additional 10% tariff on Chinese imports is well below the 60% he threatened before the election.
Markets are focused on Trump’s plan to boost U.S. oil production, which has been hovering near record levels between 2022 and 2024, to address supply disruptions caused by geopolitical crises and sanctions.
