Oil falls as Trump favours Iran diplomacy before midterm elections

Oil prices initially fell on Monday as optimistic prospects for diplomatic efforts to resolve the U.S.-Israeli conflict with Iran eased concerns about potential supply disruptions. Brent Oil Futures for January delivery dropped 1.8% to $111.43 per barrel, while U.S. West Texas Intermediate crude futures declined 2% to $102.04 per barrel.

The recent price surge saw both contracts end nearly 15% higher for October. U.S. President Donald Trump discussed this situation with Israeli Prime Minister Benjamin Netanyahu via phone call on Saturday, expressing a preference for more time dedicated to diplomacy before considering military action. This stance raised concerns among Netanyahu, who advocated for resuming military operations shortly after the midterm elections.

The possibility of further talks brought some relief, but the election loomed as a significant risk factor, given Trump's previous hint that military action could follow if negotiations failed. Iranian and Qatari officials engaged in a third day of talks aimed at ending the conflict. Iran remains open to diplomacy while preparing to defend itself, while Qatar seeks to mediate a proposal to reopen the Strait of Hormuz, a critical waterway for energy markets.

The ongoing attacks on tankers and restrictions on Iranian oil exports have heightened shipping and insurance costs. OPEC+ maintained December output targets unchanged, with no additional policy adjustments expected before next year due to the conflict's ongoing impact on exports. Prices may temporarily retreat if negotiations fail to yield results.

However, analysts cautioned that an escalation following the U.S. midterm elections could drive Brent oil prices toward $120 per barrel. Even if a deal is reached, the speed at which shipping and oil exports resume normal operations will determine how swiftly supply concerns dissipate.