Oil futures pulled back from their highest levels in weeks as traders took profits ahead of the Federal Reserve’s meeting later this week, awaiting clues on potential rate cuts.
However, losses were limited by concerns over supply disruptions, particularly if the U.S. imposes additional sanctions on major suppliers like Russia and Iran.
Brent crude futures declined by 21 cents, or 0.3%, to $74.28 a barrel by 0424 GMT, following their highest settlement since November 22 on Friday.
U.S. West Texas Intermediate crude fell 30 cents, or 0.4%, to $70.99 a barrel after hitting its highest settlement since November 7 the previous session.
“After last week’s +6% rally, and with crude oil nearing recent range highs, we are likely seeing some profit-taking,” said IG market analyst Tony Sycamore.
“Additionally, many trading books at banks and funds were likely closed at the end of last week, reducing appetite for positions ahead of the festive season.”
Oil prices were supported by new European Union sanctions on Russian oil and 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 further sanctions on “dark fleet” tankers and may target Chinese banks to reduce Russia’s oil revenue and its access to foreign supplies for the war in Ukraine.
New U.S. sanctions on entities trading Iranian oil are already pushing prices of crude sold to China to their 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, as well as expectations that the Fed will announce a rate cut this week, Sycamore noted.
The Fed is expected to lower interest rates by 0.25 percentage points at its December 17-18 meeting, which will also provide an updated outlook on how much further rate reductions may occur in 2025, and possibly into 2026.
Lower interest rates can stimulate economic growth and increase demand for oil.
However, forecasts of plentiful supply in 2025 from the International Energy Agency, along with CNPC’s projections of declining oil demand in China—the world’s second-largest consumer—after consumption peaked in 2023, will likely continue to exert pressure on global oil markets.
