Oil Falls Fourth Day as Iran War Risk Eases
Oil falls for a fourth day on Thursday, on expectations that the losses suffered by US President Donald Trump’s Republican Party in Congressional elections this week may reduce the risk of further escalation of the US-Israeli war on Iran.
Brent futures fell 80 cents, or 0.85 per cent, to $93.82 a barrel as of 0426 GMT. US West Texas Intermediate crude futures were down $1.20, or 1.36 per cent, to $86.92.
Both benchmarks had tumbled by more than 8 per cent in the previous session, settling at their lowest since 31 August. The fourth straight daily fall extends that sharp retreat.
Why the midterms moved the market as oil falls
A weakened Trump, facing a Democratic Congress able to constrain his military options, has greater incentive to seek a deal, two sources close to Gulf government circles said on Wednesday. A full-scale assault on Iran now looks less likely, they said.
Markets are assessing the impact of the midterm elections on Donald Trump’s next steps with the Iran war, said June Goh, senior oil analyst at Sparta Commodities. Traders are pricing in a higher likelihood that the war will end, she said.
However, Goh added a caution that runs through the market commentary. There will be more volatility ahead, she said, as the path to full diplomacy to end the war is still wrought with many unknowns, while global strategic reserves have drawn very thin.
Hormuz flows and the return to surplus
Crude shipments through the Strait of Hormuz, the key waterway for most Gulf oil supplies, have recovered to close to pre-war levels, according to analysts, though at a higher cost.
The resumption of Gulf supply has pushed the global oil market back into surplus after months of disruption caused by the war, JPMorgan said in a note on Wednesday. JPMorgan estimates the market returned to a surplus of 1.1 million barrels per day in September, widening to 1.4 million barrels per day in October. That figure nearly matches last year’s average of 1.3 million barrels per day.
Commercial oil inventories in major consuming countries are near their lowest in 15 years, according to the market analysis cited in the report. US crude, gasoline and distillate inventories all fell last week as demand hit its highest in a year, the Energy Information Administration said on Wednesday.
The market is back in surplus on a flow basis, but stocks remain thin. That combination explains why prices can fall sharply on easing war risk, yet remain vulnerable to a sudden jump if escalation returns.
What analysts still disagree on
Eurasia Group lowered its estimate for the chance of renewed US strikes on Iran to 60 per cent from 65 per cent, but it also cut the probability of a deal to 10 per cent from 20 per cent. Iran has held firm on its demands, the group noted, and Trump was unlikely to accept terms seen as a defeat. It raised the likelihood of a continued standoff to 30 per cent from 15 per cent.
Despite the recent drop, escalation would likely produce a sharper increase into a band of $110 to $125 per barrel for Brent, Eurasia Group said in a note.
Citi struck a different note of caution. In a note on Thursday, it said there were concerns that, with the midterms over, the White House could focus on its executive powers in foreign policy and potentially escalate the conflict with Iran.
Uncertainty also remains before the Democratic-controlled Congress takes office in January, analysts said. Until then, the market is trading on expectations about constraints that have not yet taken formal effect.
Iran could also emerge from the US election outcome with greater resolve, said Mukesh Sahdev, chief executive of energy consultancy XAnalysts.
What it means for Pakistan
For Pakistan, the oil market matters through the fortnightly fuel price review and through the import bill. Pakistan cut petrol prices for a third time on 4 November, and the federal cabinet has extended the fuel subsidy until December.
A softer global market, if it holds, eases pressure on the next review. It does not decide it. Domestic prices also reflect exchange rates, taxes and levies, and the subsidy position. Readers should therefore treat the Brent price as one input, not as a forecast of the pump price.
The wider picture also matters. The recovery of Hormuz shipments to near pre-war levels reduces one source of disruption risk, but thin global inventories mean fresh escalation could still transmit quickly into prices.
Related energy coverage includes the petrol price cut to Rs362, the refineries’ petrol levy plea, the Saudi $3 billion loan rollover, and the Pakistan-Saudi GCC free trade push.
Frequently asked questions
How far did oil prices fall on Thursday?
Brent futures fell 80 cents, or 0.85 per cent, to $93.82 a barrel. US West Texas Intermediate fell $1.20, or 1.36 per cent, to $86.92.
Why did prices fall?
Traders judged that the Republican losses in US Congressional elections may constrain further military escalation of the war on Iran, raising the likelihood of a deal and easing supply fears.
How much did prices fall in the previous session?
Both benchmarks tumbled by more than 8 per cent, settling at their lowest since 31 August.
Is the global oil market in surplus again?
JPMorgan estimates the market returned to a surplus of 1.1 million barrels per day in September, widening to 1.4 million in October, after the resumption of Gulf supply.
What could push prices back up?
Fresh escalation could push Brent into a $110 to $125 band, according to Eurasia Group, while thin inventories leave the market exposed to shocks.
