Global crude oil prices declined as regional diplomatic talks aimed at averting a resumption of U.S. military strikes on Iran eased supply disruption fears. Brent crude fell to around $113 to $114 per barrel, while West Texas Intermediate slipped near $100 to $102 per barrel amid ongoing Middle East tensions.
Oil Prices Fall as Peace Talks Restart
Oil prices declined as prospects of renewed peace negotiations eased supply anxieties stemming from ongoing hostilities in the Middle East. Brent crude futures fell 1.73% to $113.32 per barrel, while U.S. West Texas Intermediate crude futures dropped 2.06% to $100.66 per barrel.
The downward adjustment followed reports that U.S. Vice President JD Vance had contacted Mohsen Rezaei, secretary of Iran’s top security body, in an effort to restart peace negotiations. At the same time, officials from Saudi Arabia, Turkey, and Pakistan traveled to Tehran to discuss prospects for ending hostilities, while Iranian Foreign Minister Abbas Araghchi stated that Tehran remained open to negotiations.
Qatari mediators also put forward a fresh draft proposal aimed at resolving the conflict involving the United States, Israel, and Iran. However, a senior Iranian official rejected the proposals as unacceptable, saying that significant hurdles remain.
Tanker Attacks Maintain High Risk Premiums
Despite the recent price softening, market valuations continue to carry a substantial risk premium. Brent prices surged to more than $117 a barrel last week—their highest level since April—following a wave of Iranian attacks on tankers around the Strait of Hormuz. October has marked the worst month for attacks on commercial shipping in the waterway, according to data compiled by the Washington Institute for Near East Policy.
Aside from sea-based events, the Middle East’s largest facility saw a fire and operational disruption after Yemen’s Houthis stated a ballistic missile strike hit Saudi Arabia’s 550,000 b/d Ras Tanura refinery, which was previously shut for three months following an earlier March attack. ING analysts Warren Patterson and Ewa Manthey noted that the market is maintaining its elevated stance as traders await visibility on President Donald Trump’s approach to Iran after the upcoming vote. Goldman Sachs co-head of global commodities research Daan Struyven noted that recent attacks highlighted the potential for shipping disruptions to spread and worsen, outlining a scenario where prices could climb to $120 a barrel if vessel attacks intensify, though they could decline towards $80 a barrel if exports return to normal.
Continued Houthi attacks on Saudi Arabia and the expanding military presence in the Gulf are keeping supply risks in place, even as diplomatic headlines encourage some of the recent premium to unwind.
Gelber & Associates analysts, via Euronext Markets
Traders Monitor Potential Military Action After Elections
Traders are closely monitoring the political calendar, with expectations that hostilities could resume after the November 3 U.S. midterm elections. U.S. President Donald Trump told Axios that mediators were exchanging messages between the parties, though he remained unsure whether the talks would succeed. Concurrently, U.S. officials asked several West Asian allies to prepare for renewed military action following the vote, while CNN reported that U.S. forces in the region could launch an attack on Iran within 96 hours of an order from President Donald Trump after he suggested he might choose escalation over negotiation.
We’ll likely have to wait until after the 3 November US midterms for more clarity on how the situation in the Middle East evolves. An agreement between the US and Iran may not be needed for prices to pull back. If we get past the elections without renewed strikes on Iran, that might be enough for the market’s risk premium to start eroding.
Warren Patterson and Ewa Manthey, ING Commodity Strategists
Financial markets are also factoring in broader economic consequences. José Torres, senior economist at Interactive Brokers, pointed out that pricey crude remains the predominant driver of above-target inflation
, which justifies a patient approach from the Federal Reserve regarding interest rates. Pointing out that a geopolitical settlement might materialize very soon and that a drop in WTI crude prices down toward $70 per barrel could substantially bolster the argument for eventual interest-rate reductions, Torres additionally observed that reacting too aggressively to an oil supply shock by lifting interest rates could jeopardize employment gains and worsen credit risks. Meanwhile, SEB analyst Bjarne Schieldrop observed that market pricing heavily reflects the threat of direct military escalation.
The impression now is that there is a significant risk premium in crude oil prices for the risk that the US/Israel will attack Iran in the coming weeks.
Bjarne Schieldrop, SEB analyst
This risk premium suggests that markets are bracing for potential volatility should direct military conflict further disrupt the stability of global energy supplies in the near future.