Oil prices fell sharply on Monday, with both Brent and US West Texas Intermediate (WTI) crude sliding over 2% following reports suggesting a potential ceasefire agreement between Israel and Lebanon.

Brent crude futures dropped by US$2.16, or 2.87%, settling at US$73.01 per barrel, while WTI futures fell by US$2.30, or 3.23%, closing at US$68.94 per barrel. This decline comes amidst speculation that the Israel-Hezbollah conflict could be nearing resolution, according to unnamed senior US officials.

Israeli officials indicated progress towards a ceasefire but acknowledged unresolved issues. Lebanese representatives expressed cautious optimism while voicing scepticism about Israeli Prime Minister Benjamin Netanyahu's reliability.

"The news of a ceasefire appears to have influenced the price drop, although there hasn't been any supply disruption linked to the conflict, and the risk premium in oil was already low," commented Giovanni Staunovo of UBS.

Phil Flynn, senior analyst at Price Futures Group, noted that oil markets continue to be driven by fluctuating fears of supply disruptions. "While a reported agreement in principle between Israel and Lebanon might signal bearish sentiment, details remain unclear," Flynn stated.

The dip follows last week's sharp gains, which marked the strongest weekly performance since late September. Prices had surged after Russia launched hypersonic missiles at Ukraine, escalating geopolitical tensions involving the US and the UK.

Adding to market uncertainty, OPEC+ may decide to maintain current production cuts in its upcoming meeting on Sunday, Azerbaijan's Energy Minister Parviz Shahbazov told Reuters. The group, which includes OPEC members and allies like Russia, has repeatedly delayed output hikes this year due to demand concerns.

OPEC+ is scheduled to meet online on Dec 1 to discuss future production strategies.

Reuters