Brent crude oil experienced its largest percentage decline since April 2020 last week
While new attacks on vessels near the Strait of Hormuz have occurred, signals that Trump might adopt a more restrained stance toward Iran have exerted downward pressure on oil prices. Nevertheless, the attacks on ships near the Strait of Hormuz have kept supply concerns at the forefront.
As of 06:29 GMT, the price of a barrel of Brent crude fell 1.5% to $96.91, while U.S. West Texas Intermediate (WTI) crude dropped 1% to $89.85.
Brent crude lost 16% of its value last week, marking its sharpest weekly decline since the onset of the COVID-19 pandemic.
The oil market appears to be pricing in a relatively optimistic scenario—anticipating a reduction in tensions—even though a comprehensive agreement between the U.S. and Iran has yet to be reached.
Unless a significant diplomatic breakthrough occurs—one that would lead to a lasting normalization of maritime traffic through the Strait of Hormuz—crude oil prices will likely continue to reflect a geopolitical risk premium, driven by ongoing supply concerns.
Following last week’s U.S. midterm elections, Trump signaled the possibility of resuming attacks on Iran; however, there have been no signs of a large-scale U.S. military operation thus far. Iran, for its part, has stated that it would respond to any potential attack by striking U.S. and Israeli targets. At a time when the U.S. and Iran have reported attacks on vessels in or near the Strait of Hormuz, Trump stated on Sunday that the likelihood of new attacks against Iran is quite low, provided that talks aimed at resolving the conflict continue to progress.
Meanwhile, the flow of oil from the Middle East has recovered, and production in other major producing nations has increased, yet demand remains weak. It appears increasingly likely that the market will have to confront a situation where global supply exceeds consumption, pushing the oil market back toward a supply glut.
The supply surplus, which stood at 1.1 million barrels per day in September, is projected to rise to 1.4 million barrels per day in October.
Separately, the Iranian-backed Houthi movement claimed responsibility for an attack on Saudi Aramco offices in the capital, Riyadh, on Sunday. No casualties were reported in the incident.
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