Oil Prices Fall for Fourth Day as US Election Results Raise Hopes of Iran De-escalation

Oil prices declined for a fourth consecutive session on Thursday as investors assessed whether the Republican Party’s losses in the US congressional midterm elections could reduce the risk of further escalation in the war involving Iran.

Brent crude futures fell 80 cents, or 0.85 per cent, to $93.82 a barrel by 7:26 a.m. Saudi time. US West Texas Intermediate crude dropped $1.20, or 1.36 per cent, to $86.92.

Both benchmarks had fallen by more than 8 per cent in the previous session, settling at their lowest levels since August 31.

The election results have raised expectations that US President Donald Trump could face greater pressure to pursue a diplomatic settlement rather than expand military operations against Iran. Democrats are set to take control of Congress in January, potentially limiting the administration’s room for manoeuvre.

Two sources close to Gulf government circles told Reuters that a weakened Trump had greater incentive to seek an agreement, making a full-scale assault on Iran appear less likely.

June Goh, senior oil analyst at Sparta Commodities, said markets were factoring in a greater possibility that the conflict could end. However, she warned that uncertainty surrounding diplomatic negotiations and declining global strategic reserves could lead to further price volatility.

The prospect of a settlement has also raised expectations that oil shipments through the Strait of Hormuz could return to normal. Analysts said crude flows through the key Gulf shipping route had recovered to levels close to those before the war, although transport costs remained higher.

The recovery in exports has helped push the global oil market back into surplus after months of disruption, according to JPMorgan. The bank estimated that supply exceeded demand by 1.1 million barrels per day in September, widening to 1.4 million barrels per day in October. That was close to the average surplus of 1.3 million barrels per day recorded last year.

However, analysts cautioned that the election outcome did not guarantee an end to hostilities. Citi said the White House could focus on using its executive powers in foreign policy now that the midterm elections were over, potentially increasing the risk of further action against Iran.

Eurasia Group lowered its estimate of the likelihood of renewed US strikes to 60 per cent from 65 per cent, but also reduced the probability of a diplomatic agreement to 10 per cent from 20 per cent. It raised the likelihood of a continued standoff to 30 per cent.

The group warned that renewed escalation could push Brent crude into a range of $110 to $125 a barrel.

Mukesh Sahdev, chief executive of energy consultancy XAnalysts, said commercial oil inventories in major consuming countries were close to their lowest levels in 15 years, leaving markets exposed to supply disruptions.

In the United States, crude, gasoline and distillate inventories all declined last week as demand reached its highest level in a year, according to the Energy Information Administration.