Global oil prices on November 6 continued to recover after a sharp slump at the start of the week. However, even after two days of gains, the market remains on track for the biggest weekly drop since spring 2020. Investors are assessing the prospects for an end to the US and Israel's war against Iran, as well as the possibility of restoring oil supplies via the Strait of Hormuz.
According to Bloomberg, on Friday morning, January Brent futures rose 1.3% to $99.56 per barrel. US WTI increased by 0.9%, to $91.32 per barrel.
On the previous day, Brent ended trading with a nearly 4% increase, partly recovering from losses after a slump caused by the results of the US midterm congressional elections.
Despite the recovery in quotations, the nearest Brent futures have lost about 15% since the beginning of the week. If this dynamic persists until trading closes, it will become the largest weekly drop since April 2020.
At the same time, part of this decline is related to the change in the nearest futures contract after the end of October trading. The January Brent contract, which is currently the main one for the market, has fallen in price by about 12% over the week.
The main factor behind the sharp fluctuations remains expectations regarding the war in the Middle East. After the Democrats won control of both houses of the US Congress, investors began to more actively price in the possibility of a faster diplomatic settlement of the conflict with Iran.
However, significant differences remain between Washington and Tehran. Iran demands the lifting of the US naval blockade, easing of sanctions, and unfreezing of its overseas assets before fully opening the Strait of Hormuz to shipping.
According to US media reports, Tehran is considering new proposals from mediators regarding the nuclear program. Qatar continues diplomatic efforts aimed at preventing a new large-scale US military operation.
At the same time, Iran's actual losses from the naval blockade have already become significant. According to the energy consulting company FGE NexantECA, Iranian oil exports have fallen to minimal volumes.
Bloomberg reported FGE representative Fereidun Fesharaki as saying that currently only about 200-300 thousand barrels of Iranian oil per day are reaching the global market via Iraq. This is significantly less than supply volumes before the war.
The expert believes that prolonged export restrictions will increase financial pressure on Tehran. In his assessment, despite the economic losses of the Iranian side, a quick agreement with the US remains unlikely.
Thus, the oil market is simultaneously reacting to two opposing factors. Expectations of a diplomatic settlement reduce the risk premium in prices, while restrictions on Iranian exports and the unstable situation in the Strait of Hormuz continue to support quotations.
Further dynamics will depend primarily on the decisions of Washington and Tehran. Restoration of full shipping through the Strait of Hormuz may strengthen price declines, while new military strikes or drawn-out negotiations could again provoke sharp increases.
