Oil futures retreated from their highest levels in weeks as traders took profits ahead of a Federal Reserve meeting later this week, where they are seeking guidance on potential rate cuts.
However, the declines were limited by concerns over supply disruptions, especially if the U.S. imposes further sanctions on major suppliers like Russia and Iran.
Brent crude futures dropped by 29 cents, or 0.4%, to $74.20 a barrel by 0746 GMT, after reaching their highest level since November 22 on Friday.
U.S. West Texas Intermediate crude fell 36 cents, or 0.5%, to $70.93 a barrel, after hitting its highest settlement level since November 7 in the previous session.
“After last week’s 6% rally, and with crude oil prices near recent highs, we’re likely seeing some light profit-taking,” said IG market analyst Tony Sycamore. “Additionally, many banks and funds likely closed their books at the end of last week, leading to a reduced appetite for positions during the festive season.”
Oil prices were supported by new European Union sanctions on Russian oil last week, as well as expectations of tighter sanctions on Iranian supply, Sycamore added.
U.S. Treasury Secretary Janet Yellen told Reuters on Friday that the U.S. is considering additional sanctions on “dark fleet” tankers and will not rule out sanctions on Chinese banks as part of efforts to limit Russia’s oil revenue and access to foreign supplies for its war in Ukraine.
New U.S. sanctions on entities trading Iranian oil have already pushed the price of crude sold to China to its highest levels in years. The incoming Trump administration is expected to increase pressure on Iran.Oil prices were also supported by interest rate cuts from key central banks in Canada, Europe, and Switzerland last week, along with expectations that the Federal Reserve will reduce rates this week, Sycamore noted.
The Fed is anticipated to lower interest rates by a quarter of a percentage point at its Dec. 17-18 meeting, which will also offer insights into how much further Fed officials expect to cut rates in 2025, and possibly into 2026.
Lower interest rates can stimulate economic growth and boost oil demand.
However, forecasts from the International Energy Agency and CNPC regarding ample oil supply in 2025, coupled with expectations of a decline in oil demand in China—after consumption peaked in 2023—are factors that will continue to put pressure on global oil markets.
Economic data released on Monday showed a slight acceleration in China’s industrial output growth in November, while retail sales disappointed, keeping pressure on Beijing to implement more consumer-focused stimulus as policymakers prepare for additional U.S. trade tariffs under a second Trump administration.
“We expect further policy easing in 2025, with fiscal stimulus playing a major role, focusing more on boosting consumption,” analysts from Goldman Sachs said in a note on China.
