Written by Antonio Di Giacomo, Senior Market Analyst at XS.com
The price of West Texas Intermediate (WTI) crude oil saw a notable drop on Monday, November 25, 2024, falling by more than $2.00, representing a decline of over 2.50%, closing at around $69.00 per barrel. Reports suggesting a potential ceasefire agreement between Israel and Lebanon may have primarily influenced this drop. Although the markets were affected by these rumors, it is important to highlight that there were no disruptions in oil supply due to the conflict, meaning the global supply-demand balance should not have been altered.
The decline in WTI reflects how energy markets respond to expectations of changes in geopolitical risks. Investors, sensitive to any potential disruption in crude oil supply security, quickly react to news suggesting a de-escalation of international tensions. In this case, the possibility of a ceasefire reduced the risk premium associated with oil, leading to a price drop.
This behavior in oil prices is also framed within a broader context of fluctuations driven by international conflicts. Although the conflict between Israel and Lebanon had not directly disrupted supply, the perception of reduced geopolitical risks alleviated the uncertainty, pushing higher prices. It is a clear example of how external factors can influence energy markets beyond the fundamental conditions of supply and demand.
In contrast, last week, the price of WTI experienced a sharp rebound, driven by tensions in Ukraine. These conflicts had raised concerns over the risk of supply disruptions, which led to a spike in crude oil prices, reaching the highest levels since early November. Oil price fluctuations reflect market dynamics and the emotional responses and expectations of investors in the face of global uncertainty.
In this context, it is evident that the oil market is highly sensitive to changes in the geopolitical landscape. Crude oil prices are often more a response to investors’ expectations than actual events. This week’s drop, although significant, could be temporary if international tensions rise again, underscoring the inherent volatility in commodity markets.
In conclusion, the price of WTI oil reflects the complex interactions between geopolitical factors, market expectations, and supply-demand conditions. While the potential ceasefire between Israel and Lebanon did not cause supply disruptions, its impact on the perception of geopolitical risks was enough to drive prices down. This phenomenon highlights the sensitivity of oil markets to international events and how investor expectations can lead to significant movements in crude oil prices even when risks do not materialize.