Oil prices extended their slump on Monday as optimism grew over diplomatic efforts to end the war in the Middle East, even as regional attacks persist. Global benchmark Brent sank as much as 4.8% to trade below $94 a barrel after posting its biggest weekly decline since April 2020. Hopes for a breakthrough in negotiations have grown following the Democratic sweep in the US midterm elections, which has compounded pressure on Washington to seek an off-ramp. President Donald Trump indicated it was "highly unlikely" he would order extensive strikes on Iran, though this depends on Tehran signing a "very strong agreement."
Crude has tumbled from a six-month high at the end of October. However, it remains uncertain whether dovish rhetoric will translate into tangible progress. The US again struck Iran's Qeshm Island overnight, while US Secretary of State Marco Rubio played down the chances of a breakthrough in talks. Prices sank to fresh session lows on Monday following unconfirmed reports of progress on a deal between the two sides. A Qatari official said claims purporting to reveal details of a proposal, including nuclear terms and frozen assets, were false. Negotiations are continuing, the official said.
"The oil market appears to be in a calm-before-the-storm phase, with the outlook for prices looking increasingly binary over the coming weeks," said Helge Andre Martinsen, a senior energy analyst at DNB Carnegie. A diplomatic breakthrough "could send oil prices sharply lower. Conversely, a return to kinetic warfare could drive prices significantly higher."
Oil remains up more than 50% this year as the war has hampered flows from the Middle East. However, futures have been increasingly responsive to bearish geopolitical news since crude exports from the Persian Gulf picked up. Output from the Organization of the Petroleum Exporting Countries last month rose to 88% of prewar volumes, according to a Bloomberg survey. However, Iranian production has slumped as the US enforces a naval blockade on its exports. Flareups continue in the region. A tanker was reportedly hit by an unknown projectile over the weekend while transiting the Strait of Hormuz, according to UK Maritime Trade Operations. And in Riyadh, Iran-backed Houthi rebels damaged the offices of state oil giant Saudi Aramco in an attack, prompting Saudi forces to retaliate by destroying two missile launchers.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing