Oil prices fell in early Asian trading on Tuesday, extending losses from the previous session as the prospect of an Israel-Lebanon ceasefire prompted traders to price in a lower risk premium for crude.

A surge in the dollar, after U.S. President-elect Donald Trump threatened to impose tariffs on China, Canada and Mexico, also weighed on oil prices.

Brent crude for January delivery fell 0.3% to $72.80 a barrel, while West Texas Intermediate crude fell 0.3% to $68.33 a barrel by 8:14 p.m. ET (01:14 GMT).

Oil pressured by reports of an Israel-Hezbollah ceasefire looming

Oil prices fell on Monday after media reports said Israel and the Lebanese militant group Hezbollah were close to reaching a U.S.-brokered ceasefire deal.

US President Joe Biden and French President Emmanuel Macron are set to announce a ceasefire "soon," Reuters reported.

The ceasefire between the two would mark a major de-escalation in the long-running Middle East conflict, and reduce the risk of disruptions to oil supplies stemming from the conflict.

Reports also suggested that Biden was pushing for a ceasefire in Gaza.

However, the ceasefire was undermined by Israel and Hezbollah launching attacks on each other over the weekend.

Oil's risk premium also remains in place following heightened Russia-Ukraine tensions over the past week, after Moscow threatened nuclear retaliation over Kyiv's use of Western-made long-range missiles in the war.

Dollar surges after Trump's tariff threats

The dollar rose sharply on Tuesday, pressuring oil prices after Trump threatened to impose 10% trade tariffs on China over alleged drug imports into the US.

Trump has also threatened 25% import tariffs on Mexico and Canada over claims that illegal immigrants enter the US through those countries.

The dollar surged on the prospect of more US protectionist policies, re-approaching a two-year high and pressuring crude prices. A stronger dollar makes oil more expensive for international buyers, reducing demand.

The prospect of higher trade tariffs on China, the world's largest oil importer, is also weighing on oil, as it would signal more economic pressure on Beijing.

Beijing could also impose retaliatory tariffs on the U.S., escalating a trade war between the world's two largest economies and potentially disrupting global trade.

Source: Investing.com