After reaching a two-week high, crude oil prices fell back on Monday as investors rebalanced positions in major asset classes. However, bullish factors remain in the near term as geopolitical tensions rise.

Crude oil prices rose to a two-week high amid a major escalation in the Ukraine and Russia war. The Brent futures at ICEsurged 5.8 percent and the WTI futures at NYMEX rallied 6.3 percent last week. 

However, the upside momentum faltered during the Asian session on Monday, most likely due to positions rebalancing in major asset classes.

Michael Brown, a senior research strategist at Pepperstone London wrote in a note: "I'd be reluctant to buy into the rally here, though, instead seeking to fade any geopolitical risk premium priced into crude."

At 6.30 am CET, the Brent futures fell 0.72 percent to $74.63 per barrel, and WTI futures declined 0.53 percent to $70.71 per barrel. 

The war-induced rally in gold and the US dollar have all lost steam as the precious metal prices slumped 1.7 percent, erasing Friday's gains, and the dollar index retreated from a two-year high, declining 0.5 percent.

Despite the price retreat, crude markets may maintain bullish trends as the year-end approaches. Geopolitical tensions and a potential revival in China's demands will likely contribute to further rebounds in the oil markets in the near term. 

Ukraine carried out US-made longer-range missiles targeting a military base inside Russian territory one week ago. In response, Russia warned of lowering its doctrine to use nuclear weapons and fired a hypersonic missile at Ukraine, marking a major escalation in the geopolitical tensions between the West and Russia.

The concerns surround potential supply disruptions if Ukraine attacks Russia's oil and gas infrastructure. The escalation may continue this week as Ukraine's president Volodymyr Zelensky said that Ukraine had been targeted by nearly 500 drones and become "a testing ground" for Russia's munitions. 

In the Middle East, traders are closely monitoring the risk of a retaliatory strike on Iran's oil infrastructure by Israel amidst escalating tensions between the two nations. According to S&P Global, Iran's crude oil loadings have slowed since October.

Meanwhile, the International Atomic Energy Agency's Board (IAEA) passed a resolution to pressure Iran into a new round of nuclear talks. A meeting between Iran and the European counterparties, Germany, and Britain will be held this Friday, Reuters reported.

Parties are progressing toward an agreement before Trump comes into power in January. The US presidential-elect is expected to reinforce restrictions on Iran's oil exports, which could lead to one million bpd cuts, or 1 percent of the world's supply if this happens. 

Iran is the world's third-largest oil reserve holder in 2023. However, its production has been limited due to the US sanctions for several years. 

Expectations for a revival of China's imports in November were another catalyst that buoyed oil prices. China's crude import may reach 11.4 million barrels per day this month due to price cuts, the third-highest monthly shipment this year, according to LSEG Oil Research. 

A report from S&P Global showed China's oil demand may grow by 1.1 percent to 17.29 million bpd in 2024 and increase by 1.7 percent to 17.59 million bpd in 2025. 

China announced sweeping stimulus measures in September and ongoing implementation of further easing policies to bolster the economy. 

The recent economic data showed that China's exports surged 12.7 percent year on year to $309.06bn in October, the highest increase since Mach 2023. China's retail sales, manufacturing activities, and housing markets have all seen better-than-expected readings last month.

Despite China's optimism, analysts from Commodity Insights believe that rising production in the US and Canada, coupled with production hikes in the OPEC+, will potentially lead to a balanced demand and supply market, offsetting the price impact of rising demands.