World oil prices continued to decline on Monday, November 9, after the biggest weekly drop since April 2020. Investors are assessing the prospects of a diplomatic resolution to the conflict between the US and Iran, despite new attacks in the Middle East and the persistence of risks to oil supply.
According to Bloomberg, during morning trading, futures for benchmark Brent crude were falling toward $97 per barrel, while American West Texas Intermediate (WTI) was trading near $91.
Last week, Brent lost more than 16% of its value. This was the sharpest weekly drop in oil prices since the beginning of the COVID-19 pandemic in 2020.
Oil has significantly declined compared to the six-month high reached at the end of October. One factor was increased expectations of a diplomatic settlement to the conflict following the Democratic Party's victory in the US midterm elections.
Market participants assume that the new political situation in Washington may limit the possibilities for further military escalation and increase pressure on the administration of Donald Trump to reach a deal with Tehran.
Additional signals for the oil market came from statements by the American president. On Sunday, November 8, Trump in an interview with CNN said that new US strikes on Iran are highly unlikely if negotiations to end the conflict show significant progress.
However, US Secretary of State Marco Rubio gave a much more restrained assessment of the prospects for agreements. According to him, the demands currently made by the Iranian side are unacceptable, and some of them are "outrageous and absurd".
Conflicting statements from the US administration maintain uncertainty about the timing of a possible resolution of the conflict. Talks between Washington and Tehran have been ongoing for several months but have not yet led to a final settlement.
Jorge Leon, head of geopolitical analysis at Rystad Energy, warned that increased political pressure to reach a deal does not necessarily mean a compromise is approaching. In his assessment, a new escalation could quickly negate a significant part of last week's decline in oil prices.
Risks remain high due to new attacks on shipping and energy infrastructure in the Middle East. According to the UK Maritime Trade Operations, over the weekend a tanker passing through the Strait of Hormuz was struck by an unknown projectile.
In addition, Yemeni Houthis carried out a new attack on Saudi Arabia. According to the Financial Times, falling debris caused minor damage to administrative offices of the state oil company Saudi Aramco in Riyadh. Saudi authorities reported no casualties.
Despite constant threats to shipping, oil exports from the Persian Gulf are gradually recovering and approaching pre-war volumes. According to a Bloomberg survey, in October oil production by OPEC countries reached about 88% of the February level recorded for the same producers.
At the same time, production in Iran has declined due to the US naval blockade. This remains one of the factors supporting a geopolitical premium in global oil prices.
Commonwealth Bank of Australia analyst Vivek Dhar believes that a deal lifting the blockade could cause Brent to fall further to $70–85 per barrel. However, this is a conditional scenario that depends on the actual restoration of exports and the cessation of military threats.
For the Ukrainian fuel market, the global cheapening of oil may gradually lower the purchase cost of imported oil products. However, the change in prices at gas stations will also depend on the exchange rate, logistics costs, and the situation on the European gasoline and diesel market.
In the coming days, oil market participants will monitor the development of US-Iran negotiations, the security situation in the Strait of Hormuz, and new demand and supply forecasts. This week, the US Energy Information Administration (EIA), OPEC, and the International Energy Agency (IEA) are expected to publish their monthly reports.
Based on materials from: Bloomberg, Financial Times
