Geopolitical Tensions and Dollar Strength Pressure Crude Oil Markets

Key Takeaways

1. Price Trends: Brent and WTI crude futures registered minor gains amid market uncertainties.
2. Geopolitical Impact: Rising tensions between Russia and Ukraine raise supply disruption fears, while a potential ceasefire in West Asia might stabilize prices.
3. Market Dynamics: A strong dollar and proposed tariffs by the U.S. president-elect are creating demand-side pressures.
4. Expert Insights: Analysts predict a volatile petroleum market ahead due to weakening demand and geopolitical uncertainties.

Petroleum Prices on a Subtle Rise Amid Global Uncertainty

• February Brent oil futures were at $72.69, up by 0.29 per cent, and January crude oil futures on WTI (West Texas Intermediate) were at $69.19, up by 0.36 per cent.
• December crude oil futures were trading at ₹5,844 on Multi Commodity Exchange (MCX)during the initial hour of trading on Tuesday against the previous close of ₹5,826, up by 0.31 per cent.
• January futures were trading at ₹5,835 against the previous close of ₹5,816, up by 0.33 per cent.

Petroleum Demand and Supply: Geopolitical Events Shaping the Market

• The recent decision of the US to allow Ukraine to use US-made weapons deep inside Russia has increased the tension between Russia and Ukraine. Russia had recently warned of strict retaliatory measures for this move.
• Russia is a major oil producing nation. The market fears that an increase in hostilities between Russia and Ukraine could disrupt crude oil supplies from the region.
• However, the ceasefire talks between Israel and Hezbollah and Donald Trump’s move to impose import tariff on Mexico and Canada limited further gains in the price of the commodity.
• The Ambassador of Israel in the US on Monday said a peace deal could be reached within days. However, it is to be seen whether Hezbollah, which is backed by Iran, will accept the deal. Market players believe that de-escalation in tensions in West Asia region would ease concerns over potential crude oil supply disruptions.
• Oil prices also faced pressure from a stronger dollar after Donald Trump, President-elect of the US, stated that he would sign an executive order imposing a 25 per cent import tariff on all products coming from Mexico and Canada over the claims of illegal immigrants entering the US through these countries. A stronger dollar makes commodities such as crude oil expensive for international buyers, thereby affecting demand.

Petroleum News: Stronger Dollar Adds Pressure to Crude Oil Prices

• Market reaction to the ceasefire news was "over the top", said senior market analyst Priyanka Sachdeva at Phillip Nova.
• While the news calmed fear of disruption to Middle Eastern supply, the Israel-Hamas conflict "never actually disrupted supplies significantly to induce war premiums" this year, Sachdeva said.
• "The vulnerability of oil prices to geopolitical headlines lacks foundational backup and, coupled with the inability to maintain recent gains, reflects weakening global demand for oil and suggests a volatile market ahead."
• Iran, which supports Hezbollah, is an OPEC member with production of around 3.2 million barrels per day, or 3% of global output.
• A ceasefire in Lebanon would reduce the likelihood that the incoming U.S. administration will impose stringent sanctions on Iranian crude oil, said ANZ analysts.

Expert Opinion on Petroleum Market Volatility

• It is anticipated that OPEC+ may consider leaving its current oil output cuts in place from Jan. 1 at its next meeting on Sunday, Azerbaijan's Energy Minister Parviz Shahbazov told Reuters, as the producer group had already postponed hikes amid demand worries.
• The vast majority of Canada's 4 million bpd of crude exports go to the U.S. Analysts have said it is unlikely Trump would impose tariffs on Canadian oil, which cannot be easily replaced since it differs from grades that the U.S. produces.