Oil Prices Hold Near Two-Week High Amid Geopolitical Tensions

Oil prices remain close to a two-week high, supported by rising tensions between Western countries and key oil producers, Russia and Iran. Although prices dipped slightly on Monday after big gains last week, the market is still nervous about possible supply disruptions.

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Brent crude futures slipped by 26 cents, or 0.35%, settling at $74.91 a barrel. U.S. West Texas Intermediate (WTI) crude futures also dropped by 27 cents, or 0.38%, reaching $70.97 a barrel. 

According to Reuters, Yeap Jun Rong, market strategist at IG said,"Oil prices are starting the new week with some slight cool-off as market participants await more cues from geopolitical developments and the Fed’s policy outlook to set the tone.”

Despite these modest declines, both oil contracts saw their largest weekly gains since late September last week, reaching their highest settlement levels since early November. The price jump came after Russia launched a hypersonic missile at Ukraine in a warning to the United States and the UK, following Kyiv’s attacks on Russian territory using Western-made weapons.

The geopolitical tensions surrounding Russia and Ukraine are expected to persist through the year-end, which analysts believe will continue to support oil prices in the range of $70 to $80 per barrel. As both countries prepare for potential negotiations, uncertainty in the region remains high, further contributing to the tight market outlook.

In addition to the situation in Ukraine, tensions are rising between Iran and the West. Iran’s recent reaction to a resolution passed by the U.N. nuclear watchdog, the International Atomic Energy Agency (IAEA), could worsen the risks to global oil supplies. The IAEA censured Iran over its nuclear program, prompting Iran to activate advanced centrifuges for uranium enrichment. 

Vivek Dhar of the Commonwealth Bank of Australia noted that IAEA’s censure and Iran’s response raises the likelihood of sanctions on its oil exports once Trump takes power, this could potentially remove million barrels per day, or 1% of global supply of Iran’s oil exports.

Iran's foreign ministry has also announced plans to hold talks on its disputed nuclear program with three European powers on November 29, but the uncertainty surrounding this issue is likely to keep oil prices volatile.

Beyond geopolitical concerns, the market is also being supported by rising demand for crude oil from China and India, the world’s largest and third-largest oil importers, respectively. China’s crude imports saw a rebound in November, driven by lower prices and increased stockpiling activity. Meanwhile, Indian refiners ramped up crude throughput by 3% year-on-year to 5.04 million barrels per day in October, supported by increased fuel exports.

In Conclusion

Looking ahead, traders will be closely watching U.S. economic data, especially the Personal Consumption Expenditures (PCE) index, due this Wednesday. This data is expected to provide clues about the Federal Reserve's upcoming policy meeting in mid-December, which could influence market sentiment. While oil prices have seen some pullback this week, geopolitical tensions between Russia, Iran, and the West, along with growing demand from key importers like China and India, are expected to keep the market tight.