Oil prices dipped in early Asian trading on Tuesday, continuing a decline from the previous session as reports of a potential ceasefire between Israel and Lebanon reduced the risk premium for crude.
The dollar saw a spike following U.S. president-elect Donald Trump’s warnings of imposing import tariffs on China, Canada, and Mexico, further adding pressure on oil prices.
Brent crude futures expiring in January dropped 0.3% to $72.80 per barrel, while WTI crude futures fell 0.3% to $68.33 a barrel by 20:14 ET (01:14 GMT).
Oil pressured by reports Israel-Hezbollah ceasefire is close
Oil prices took a hit on Monday amid speculations of an imminent ceasefire agreement between Israel and the Lebanese militant group Hezbollah, brokered by the U.S.
U.S. President Joe Biden and French President Emmanuel Macron are expected to announce the ceasefire soon, as reported by Reuters.
A truce between the two parties would mark a significant de-escalation in the ongoing Middle East conflict, reducing the risk of disruptions in oil supply due to the conflict.
Although reports indicated progress towards a ceasefire, both Israel and Hezbollah engaged in attacks against each other over the weekend, casting doubt on the peace talks.
The persisting risk premium on oil was also influenced by heightened tensions between Russia and Ukraine, with Moscow threatening nuclear retaliation against Kyiv for using Western-made long-range missiles.
Dollar surges after Trump tariff threat
The dollar surged on Tuesday following Trump’s warning of imposing a 10% trade tariff on China for alleged drug trafficking into the U.S.
Additionally, Trump threatened a 25% import tariff on Mexico and Canada over claims of illegal immigrants crossing into the U.S.
The strengthened dollar, driven by the anticipation of more protectionist policies from the U.S., weighed on crude prices by making oil more expensive for global buyers and reducing demand.
The potential escalation of trade tariffs on China, a major oil importer, could lead to economic strains on Beijing and potential retaliatory measures, escalating tensions between the world’s top economies and disrupting global trade.
Analysis:
The article discusses how oil prices were impacted by the possibility of a ceasefire between Israel and Hezbollah, reducing the risk premium associated with crude oil. The rise in the dollar following Trump’s tariff threats against China, Mexico, and Canada further added pressure on oil prices. These geopolitical and economic developments can influence oil markets, affecting consumer prices and investment decisions. It is crucial for individuals to stay informed about such events as they can have direct implications on their finances and the global economy.