Oil rebounds from two-month low as uncertainty lingers over Iran war

Oil prices recovered on Thursday following a sharp drop, as market participants continued to assess the situation concerning the Iran conflict after the Democrats' victory in the US midterm elections. Brent crude, which represents two-thirds of the world's oil supply, climbed by 2.47% to $96.96 a barrel, while US West Texas Intermediate crude increased by 2.02% to $89.90 per barrel.

Both commodities had slipped to two-month lows on Wednesday, with Brent falling as low as $93. The recent decline has reduced weekly losses to around 14%.

The Democratic Party's control of the House of Representatives and the Senate in the US midterm elections has left President Donald Trump's strategy regarding the Iran war uncertain. Crude's recent fall provided temporary relief from persistently high energy costs, yet the market remains vulnerable to binary geopolitical risks due to the lack of a peace agreement between Washington and Tehran, according to Ole Hansen, head of commodity strategy at Denmark's Saxo Bank.

Iran's navy reported that one of its vessels struck a mine and caught fire in an area east of the Strait of Hormuz, accusing the ship of violating regulations by operating in an "unsafe zone" on Thursday. Simultaneously, Saudi Arabia faces ongoing missile attacks from Yemen's Houthi rebels. Iranian Foreign Minister Abbas Araghchi held telephone conversations with his Saudi and Qatari counterparts, Prince Faisal bin Farhan and Sheikh Mohammed bin Abdulrahman, to discuss regional developments and recent diplomatic initiatives aimed at restoring stability, according to the Tasnim news agency.

Paul Donovan, chief economist at UBS Global Wealth Management, suggested that oil still has room to fall once the fighting concludes. He stated that he believes the oil price's fundamental fair value is likely to be around $80 to $85 per barrel once the war is over. Donovan expects the market to settle at this level in a postwar environment.