Oil prices rose on Tuesday after dropping by almost $2 per barrel in the preceding session. Brent crude futures were at $73.54 per barrel as of 12:31 GMT, up 0.7%, while the U.S. West Texas Intermediate (WTI) crude futures were up 0.75% at $69.46 per barrel. This came after news of a possible cease-fire between Israel and Lebanon's Hezbollah, which initially contributed to the selling of crude oil.
Investors concerned about the possibility of disruptions in Middle Eastern oil production treated the ceasefire information positively. Nonetheless, this year's general Middle Eastern conflict did not adversely affect the international network of supply chains. Phillip Nova's Priyanka Sachdeva also labeled the markets' reaction to ceasefire news as 'over the top', for there were no significant disruptions of supplies to leaders that would warrant rewarding risk premiums.
Some of the key OPEC member countries include Iran, which supports Hezbollah and provides close to 3.2 million barrels per day of oil to the market. Currently, the conflict between Israel and Lebanon reduces the probability of the U.S. placing more stringent sanctions on Iranian crude. ANZ analysts said new sanctions could reduce Iran's oil exports by up to one million barrels daily, consequently driving up supply.
Another major consideration in oil markets is a set of policies in the USA implemented by an incoming administration. Donald Trump, the president-elect, recently recommended levying a 25% duty on goods imported from Mexico and Canada. However, as far as Canadian crude oil is concerned, the effects are still unpredictable, and the imposition of tariffs on Canadian oil is unlikely because its grades have specific characteristics that cannot be substituted easily in the United States.
OPEC and other associated producers focus on preserving current production adjustments in an upcoming meeting. Azerbaijan's Energy Minister Parviz Shahbazov suggested that the group may delay further production increases in response to existing demand issues. The International Energy Agency (IEA) also foresees sufficient oil supply in 2024, provided geopolitical risk does not materialize.
However, the increase in tensions between Russia and Ukraine and recent drone attacks on Kyiv compound this aspect. These tensions are synchronous with the recent policy shift from US President Joe Biden, who permits Ukraine to attack Russian soil using equipment supplied by the United States, thus possibly fanning more unrest in this region.