Oil Dips Amid Cease-Fire Hopes and OPEC+ Speculations

Oil fell on expectations that Israel and Lebanon-based Hezbollah will reach a cease-fire agreement, reducing the threat to crude flows from the Middle East.

West Texas Intermediate edged lower to settle beneath $69 a barrel, while Brent settled below $73. Both benchmarks had risen earlier in the session after Bloomberg reported key OPEC+ nations are discussing delaying planned production increases.

Israeli Prime Minister Benjamin Netanyahu said he was bringing a proposed cease-fire with the militant group to a vote in Israel’s security cabinet Tuesday night. Such a deal may reduce Middle East supply risks, which have helped prop up oil prices even amid widespread expectations of an oversupply of crude next year.  

Prices may slide at least $3 a barrel if the cease-fire materializes, said Robert Yawger, director of the energy futures division at Mizuho Securities USA.

A truce “would imply that Iran gave the green light for Hezbollah to accept the cease-fire, which would probably make it less likely Israel will attack Iran’s nuclear facilities with the backing of the Trump Administration,” Yawger said.

Buying activity from algorithmic-driven investors known as commodity trading advisers — or CTAs — prevented deeper declines, said Daniel Ghali, a commodity strategist at TD Securities.

“Crude prices have displayed quite a bit of resiliency” against the news of a cease-fire, Ghali said. “We have just underwent a series of days in which CTAs have been contributing to the upside in crude prices. And in fact, we are seeing signs of buying exhaustion from this cohort that could fairly quickly morph into selling activity.”

Traders are also assessing President-elect Donald Trump’s threat of new tariffs on key trading partners. Trump’s announcement of the potential levies on Canada, Mexico and China initially sparked a rally in the dollar that weighed on commodities priced in the currency. A report that 25% tariffs on Canadian and Mexican imports may include crude triggered losses for Toronto oil equities.

Limiting the declines, some OPEC+ members have expressed doubt that they can implement a 180,000 barrel-a-day increase scheduled for January, and they see a need to postpone further hikes planned for the following months. The group is meeting on Dec. 1 to decide on the plans.

Traders are expecting choppy trading ahead as they assess number of catalysts for the market’s next move — including the policies of a second Trump presidency and geopolitical risks linked to Russian and Iranian supplies next year.

Oil Prices:

• WTI for January delivery fell 0.2% to settle at $68.77 a barrel.
• Brent for January settlement slipped 0.3% to settle at $72.81 a barrel.