Israel Ceasefire Deflates Risk Premium, Oil Could Drop $3 Further: Yawger

Meanwhile, U.S. inventories drop unexpectedly: File Image/Pixabay

Oil's risk premium on Tuesday was somewhat reduced as Israel agreed to a ceasefire with Hezbollah – although Israeli prime minister Benjamin Netanyahu promised to "respond forcefully" to any violation of the agreement.

Brent settled down 20 cents to $72.81 per barrel, and West Texas Intermediate settled down 17 cents at $68.77 per barrel.

Despite the Gaza war being ignited by a breaking of a previous ceasefire with Israel, U.S. president Joe Biden stated that "This is designed to be a permanent cessation of hostilities; what is left of Hezbollah and other terrorist organizations will not be allowed to threaten the security of Israel again."

Robert Yawger, director of the energy futures division at Mizuho Securities USA, pointed out that the truce, which is expected to take effect Wednesday,  "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."

He predicted that prices may slide at least $3 per barrel if the ceasefire indeed takes effect.

Earlier in the session, oil prices jumped on two elements: a meeting of the Organization of the Petroleum Exporting Countries (OPEC), and U.S. president-elect Donald Trump vowing to impose a 25 percent tariff on all products coming into his country from Mexico and Canada – including crude, according to some sources.

John Kilduff, founding partner at Again Capital, said, "There were embers in the fire this morning with OPEC+ looking to defer production increases again and the Trump tariffs, but those were not enough to move the needle to support prices anywhere above $70 a barrel for WTI."

Regarding OPEC, Gunvor Group co-founder and chief executive officer Torbjörn Törnqvist said, "I think that there's no room for them to increase and the market will remind them of that when necessary."

Vitol Group CEO Russell Hardy added, "The likelihood is for OPEC try to mange the market in the next two to three months, to wait and see whether these geopolitical factors will solve themselves."

Also on Tuesday, the American Petroleum Institute reported that crude inventories in the U.S. fell by 5.9 million barrels for the week ending November 15, compared with expectations for a build of 250,000 barrels.

The API stated that so far in 2024, crude oil inventories have fallen by more than 5 million barrels since the beginning of the year.