For most of this year, the geopolitical premium of oil prices has come from unexpected events in the Middle East during the escalation of the Israel Iraq conflict. At the end of 2024, another major conflict between Russia and Ukraine became headline news due to the escalation of hostilities, Ukraine's first use of long-range missiles provided by Western powers to strike Russian territory, Moscow's use of a new type of missile to strike Ukraine, and Putin's new nuclear doctrine.

At the end of this year, there will be significant fluctuations in oil prices due to the escalating geopolitical tensions caused by the Russia Ukraine war and Russia's renewed warning of the possibility of using nuclear weapons.

Last week, Ukraine launched long-range missiles provided by the United States and the United Kingdom into Russian territory. The Russian side has deployed a new type of medium range missile to strike the Ukrainian city of Dnipro.

Russia has also lowered the threshold for the possible use of nuclear weapons, which is another warning issued by Moscow to the West since February 2022.

Ole Hansen, head of commodity strategy at Shengbao Bank, stated that the development of the Ukraine conflict last week alone has heightened geopolitical tensions, surpassing levels seen during the year long conflict between armed groups supported by Israel and Iran.

Hansen wrote in his weekly commentary that overall, commodities recorded their best week since April last week, driven by escalating geopolitical tensions and adverse weather conditions.

The escalation of the conflict between Russia and Ukraine/the West has increased the geopolitical premium of all commodities. He said that the US dollar "recorded its eighth week of gains, while gold welcomed new safe haven demand, injecting new momentum into the market after the pullback in early November. Despite predicting sufficient supply and sluggish demand by 2025, oil'>crude oil also benefited

The strategist pointed out that the overall increase in commodities last week was led by energy and precious metals, including WTI oil'>crude oil and Brent oil'>crude oil, which are heavyweight commodities in the Bloomberg Commodity Index.

Hansen said that oil'>crude oil prices recorded a one week increase last week, "supported by the upcoming cold wave pushing US gas prices to a one-year high, rising refinery distillate profit margins, escalating tensions between Russia and Ukraine, and concerns about whether OPEC+will relax voluntary production cuts in 2025 due to market oversupply

However, it is expected that an oversupply in 2025 will limit the increase in war premiums. Despite the escalating tensions between Russia and Western powers, the fundamentals remain unfavorable as current fundamentals indicate an oversupply situation in the market next year.

According to recent market speculation, weak fundamentals may prompt OPEC+to postpone its production increase plan, which is currently scheduled to begin in January, at its meeting on December 1st.

Despite weak fundamentals, geopolitics at the end of this year and early next year may boost oil prices.

Iran announced over the weekend that it will launch "new and advanced" centrifuges in response to the International Atomic Energy Agency's (IAEA) resolution condemning Tehran's lack of cooperation.

Iran's recent nuclear activities have raised the already high possibility that incoming US President Trump will take a tougher stance against Tehran and impose stricter sanctions on Iran's oil exports.

Iran's reduced supply will push up oil prices.

The significant decline in Iranian oil supply, as well as the rise in geopolitical and war premiums, are the main upward risks for oil prices in recent times.

Global demand is weaker than previously thought, with high idle capacity in several OPEC oil producing countries and increased supply from non OPEC+countries being the main driving factor for the downturn.

With the end of this year, geopolitical tensions may lead to increased volatility in the oil market.

Continuous daily chart of Brent oil'>crude oil