Oil extends steepest weekly decline since 2020 as traders assess Iran peace prospects

Oil prices have continued their steep weekly decline on Monday, hitting their lowest point since 2020, in response to traders assessing the potential for a diplomatic resolution to the US-Iran conflict, according to Bloomberg. Brent crude futures dropped towards $97 per barrel, while West Texas Intermediate hovered around $91, marking a 16% drop over the past week.

This significant decline follows the six-month highs in late October, driven by the Democratic victories in the US midterm elections, which have raised expectations of reduced military escalation against Iran. However, the outlook for a peace agreement remains uncertain. US Secretary of State Marco Rubio dismissed the chances of an imminent breakthrough, labeling Iran's negotiating demands as unacceptable, while President Donald Trump suggested that further military strikes would be unlikely if talks made significant progress.

Despite these developments, geopolitical risks remain high, as evidenced by a reported attack on a tanker near the Strait of Hormuz and Iran-backed Houthi forces targeting Saudi Aramco facilities in Riyadh. Analysts at Rystad Energy caution that renewed escalation could quickly reverse the recent decline in crude prices. Nevertheless, Persian Gulf oil exports have rebounded close to pre-war levels, with OPEC production reaching approximately 88% of February's output in October.

Nonetheless, Iranian production remains constrained by the US naval blockade. According to the Commonwealth Bank of Australia, if an agreement lifting these restrictions is reached, Brent prices could drop between $70 and $85 per barrel.