SINGAPORE (Reuters) – Oil prices fell slightly on Monday after a 6% gain last week, but remained close to two-week highs due to rising geopolitical tensions between Western countries and major oil producers Russia and Iran. These tensions are increasing concerns about potential supply disruptions.
Brent crude futures dropped 26 cents, or 0.35%, to $74.91 per barrel by 0440 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell 27 cents, or 0.38%, to $70.97 per barrel.
Both Brent and WTI saw their biggest weekly gains since late September last week, reaching the highest levels since November 7. This followed Russia’s firing of a hypersonic missile at Ukraine, which served as a warning to the U.S. and the UK after Kyiv’s strikes on Russia using Western-made weapons.
“Oil prices are easing slightly as the market waits for further updates on geopolitical tensions and the Federal Reserve’s outlook on monetary policy,” said Yeap Jun Rong, a market strategist at IG. “Tensions between Russia and Ukraine have recently intensified, which is leading traders to factor in the risks of a wider escalation that could impact oil supplies.”
Yeap also noted that with both Russia and Ukraine jockeying for position ahead of possible negotiations, these tensions are likely to continue into the year-end, keeping Brent prices supported in the $70-$80 range.
In addition, Iran has escalated its response to a recent resolution from the U.N. nuclear watchdog, the IAEA. Iran has activated new and more advanced centrifuges for enriching uranium.
“The IAEA’s censure and Iran’s reaction raise the chances that sanctions against Iran’s oil exports could be enforced under a potential Trump administration,” said Vivek Dhar, a commodities strategist at the Commonwealth Bank of Australia. If sanctions are imposed, about 1 million barrels per day, or 1% of global oil supply, could be affected, he added.
The Iranian foreign ministry announced on Sunday that it will hold talks on its nuclear program with three European powers on November 29.
“Markets are concerned not only about the risk of damage to oil infrastructure but also about the possibility of a broader war involving more countries,” said Priyanka Sachdeva, a senior market analyst at Phillip Nova.
Investors are also focused on increasing crude oil demand from China and India, the world’s top and third-largest importers, respectively. China’s crude imports rebounded in November as lower prices prompted stockpiling, while Indian refiners increased crude throughput by 3% year-on-year to 5.04 million barrels per day in October, driven by fuel exports.
Traders will be closely watching U.S. personal consumption expenditures (PCE) data, scheduled for release on Wednesday, as it could provide clues about the Federal Reserve’s stance ahead of its meeting on December 17-18, Sachdeva added.
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