Crude oil futures saw a slight uptick late Friday amid concerns over potential new attacks on Iran
Trump’s statement that he would soon decide whether to pursue a peace agreement with Iran or proceed with further attacks has reignited fears that the U.S. might launch new strikes against the country.
Brent crude for January delivery closed at $98.32 per barrel, up 3 cents (0.03%). Meanwhile, U.S. West Texas Intermediate (WTI) crude rose 31 cents (0.34%) to reach $90.83 per barrel.
Brent crude contracts fell by 17% this week—the sharpest weekly percentage decline and the largest drop in absolute terms since the onset of the COVID-19 pandemic.
WTI crude has declined 13%.
The current situation appears to reflect a partial unwinding of the risk premium previously priced in due to the threat of war.
While the results of the U.S. midterm elections have raised hopes—driven by pressure from the Democrats—that the intensity of a potential conflict with Iran might diminish, potentially allowing for increased crude oil exports from the region, they have also fueled expectations that the U.S. may introduce stricter regulations on the artificial intelligence sector. This prospect triggered a sharp sell-off in technology stocks on Thursday.
In the oil markets, there are signs of both a contraction in demand and the emergence of a supply surplus. The shift has become even more pronounced as spot premiums for Middle Eastern crude oil benchmarks have returned to pre-conflict levels.
The crude oil market has eased toward a state of oversupply. A persistent quality gap remains between the crude oil currently held by refineries and the specific grades they are equipped to process.
Shipping routes via the Strait of Hormuz are lengthening, ship-to-ship transfers have increasingly become a necessary workaround, and costs are rising.
The market is looking for concrete evidence that regional conflicts are being resolved; otherwise, any sharp reaction from the parties involved could cause market fundamentals to tighten once again.
Another factor influencing futures is the strong employment report released by the U.S. Department of Labor on Friday, which indicated an increase of 165,000 jobs last month. Following this report, there are concerns that the Federal Reserve (Fed) might raise interest rates.
Following the significant success of the Democrats in the U.S. midterm elections, oil prices fell by 8% on Wednesday alone, dropping to their lowest level in two months.
However, prices subsequently rebounded as attacks on tankers in the Gulf and the Strait of Hormuz intensified, reigniting concerns regarding the flow of supply from the region. These ongoing attacks on tankers have limited the decline in prices over the week.
Data from the British maritime security agency, UKMTO, indicates that attacks on oil-carrying vessels are continuing at a rate near record levels.
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