Investing.com — Oil prices rose on Tuesday, recovering from sharp losses the previous session, as the prospect of a ceasefire between Israel and Lebanon caused traders to price in a smaller risk premium for crude.
At 09:05 ET (14:05 GMT), the price rose 0.6% to $72.89 per barrel, while it rose 0.7% to $69.42 per barrel.
Oil is under pressure due to reports of a ceasefire between Israel and Hezbollah
Oil prices fell on Monday after several media reports said Israel and the Lebanese militant group Hezbollah were close to reaching a US-brokered ceasefire agreement.
US President Joe Biden and French President Emmanuel Macron will announce the ceasefire “immediately”, Reuters reported.
A ceasefire between the two marks a major de-escalation in the long-running conflict in the Middle East and reduces the risk of oil supply disruptions due to the conflict.
Reports also suggested that Biden was pushing for a ceasefire in Gaza.
“A deal in the Middle East could also help defuse tensions between Israel and Iran and significantly reduce regional supply risks to the oil market in the near term,” ING analysts said in a note.
That said, the increase in tensions between Russia and Ukraine over the past week is likely to continue to provide support after Moscow threatened nuclear retaliation for Kiev’s use of Western-made long-range missiles in the war.
Trump’s tariff threat weighs heavily
That said, the upside seems limited at this point, especially after newly elected President Donald Trump threatened to impose a hefty tariff on China over the alleged influx of illegal drugs into the US.
The dollar rose on the prospect of more protectionist US policies. It bounced back from a two-year high and put pressure on crude prices. A stronger dollar makes oil more expensive for international buyers, reducing demand.
The prospect of higher trade tariffs on China, the world’s biggest oil importer, also weighed on oil as they herald greater economic pressure on Beijing.
Beijing could also impose retaliatory tariffs on the US, igniting a trade war between the world’s two largest economies and potentially disrupting global trade.
“New tariffs from the US could intensify global trade frictions and impact longer-term economic growth prospects,” ING added.
Challenges for the oil markets in 2025
The challenges for the energy sector in 2025 are similar to those in 2024, with overcapacity in global oil markets meaning there is little room for either.
Commodity or asset price inflation, Citi analysts said in a Nov. 26 note.
However, the bank noted two differences.
“One is that there is now better valuation support with the sector discounting $62/b, 15% below strip prices. The second is that a changing political backdrop is driving reductions in the CoE sector. [cost of equity]certainly in the US, but perhaps more widely if the winds start to change in Europe as well,” Citi analysts said.
The US bank sees no options for OPEC+ to reverse production cuts in 2025, leaving an estimated 8 million barrels per day (about 8%) of global oil market capacity on the sidelines.
“While we expect OPEC+ to stick to its current strategy and keep this oil out of the market, excess capacity means there is no need for commodity or asset (equity) price inflation,” Citi said.
(Ambar Warrick contributed to this article.)
