Oil prices fell on Monday after posting their biggest weekly gain in nearly two months at the end of last week, as geopolitical risks in Ukraine and the Middle East kept investors on edge.
Brent crude fell below $75 a barrel, after jumping nearly 6% last week. West Texas Intermediate crude approached $71 a barrel.
Russia's war in Ukraine has escalated with the use of longer-range missiles by both sides, raising concerns that crude flows could be affected.
Iranian oil
Meanwhile, Iran has announced it will increase its capacity to make nuclear fuel after being criticised by the International Atomic Energy Agency, as the OPEC member braces for possible sanctions during the second term of US President-elect Donald Trump.
Vivek Dhar, an analyst at the Commonwealth Bank of Australia, said the IAEA’s rebuke of Iran and Tehran’s response increased the likelihood that Trump would seek to impose sanctions on Iranian oil exports after taking office, putting around 1 million barrels a day of supply at risk of disruption. Russian crude flows could also be affected by the escalation of the war in Ukraine, he added.
OPEC decision
Oil has been trading in a range of about $6 a barrel since mid-October, alternating between weekly gains and losses, as concerns about geopolitical tensions weighing on supply offset expectations of ample crude in 2025. The Organization of the Petroleum Exporting Countries and its oil-producing allies, known as OPEC+, meet this week to decide on output, and banks including Citigroup and JPMorgan expect a planned increase to be delayed for a third time.
The spread between commodity futures contracts in different time frames is showing an increase in optimism, with most spreads moving towards backward where prices in short-dated futures are higher than prices in long-dated contracts, reflecting strong demand in the near term. The spread between three-month Brent crude futures contracts has risen to $1.21 a barrel from 70 cents early last week, indicating an increase in optimism for oil in the short term.
