Oil falls for a fourth day on expectations for lower risk of Iran war escalation
Both oil benchmarks closed at their lowest since Aug 31
Oil prices declined for the fourth consecutive day on Thursday due to expectations that the Republican Party’s losses in Congressional elections might decrease the likelihood of further escalation in the US-Israeli war on Iran. Brent futures dropped 97 cents, or 1.03%, to $93.65 per barrel, while US West Texas Intermediate crude futures fell $1.14, or 1.29%, to $86.98 per barrel.
Both benchmarks experienced a decline of over 8% from the previous session, reaching their lowest point since August 31. A weakened President Trump, facing a Democratic-controlled Congress capable of limiting his military options, may be more inclined to seek a deal, according to sources familiar with Gulf government circles. The possibility of a full-scale assault on Iran appears less probable, they added.
A resolution to the conflict could help restore oil flows from the Middle East affected by the war, though analysts stress that the situation remains uncertain. June Goh, senior oil analyst at Sparta Commodities, noted that markets are evaluating the impact of the midterm elections on Trump’s next steps regarding the Iran war, factoring in a higher likelihood of the war's conclusion.
However, Goh cautioned that volatility will persist as the path to full diplomacy to end the war remains fraught with unknowns and the global strategic reserves have reached a critically low level. Crude shipments through the Strait of Hormuz, the primary waterway for most Gulf oil supplies, have returned to almost pre-war levels, albeit at a higher cost.
According to JPMorgan, the market returned to a surplus of 1.1 million barrels per day in September, expanding to 1.4 million bpd in October, approaching last year's average of 1.3 million bpd. Nevertheless, the abrupt drop in oil prices might prove temporary. Mukesh Sahdev, CEO of energy consultancy XAnalysts, expressed skepticism about the sustainability of lower prices following the election.
Sahdev highlighted that geopolitical risks remain challenging to predict and noted that incoming Congress would not take office until January, thus altering US policy options immediately. He also pointed out that commercial oil inventories in major consuming countries are near their lowest in 15 years, and Iran could emerge from the US election outcome with increased resolve.
US crude, gasoline, and distillate inventories all experienced declines last week, as demand surged to its highest level in a year, as reported by the Energy Information Administration.
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