SEATTLE (Oil Monster): Brent crude fell below $90 a barrel on Tuesday for the first time since August 31 as U.S. President Donald Trump played down the need for further military action against Iran and growing oil supplies added pressure to the market.
Brent crude futures fell $2.92, or 3.15%, to $89.65 a barrel by 1334 GMT, while U.S. West Texas Intermediate crude declined $2.33, or 2.68%, to $84.52.
Brent had already lost about 5.9% in the previous session. Tuesday's decline took the benchmark below $90 for the first time since August 31.
The benchmark has now retreated roughly 23% from the six-month high of $118 reached on October 30.
Trump said Monday that he planned to hold off on new military strikes against Iran after appeals from governments in the region, including Qatar.
He has maintained that the United States remains prepared to act if necessary, while continuing the naval blockade affecting Iranian oil movements through the Strait of Hormuz.
Markets have nevertheless focused on the more conciliatory tone since the U.S. midterm elections.
Tim Waterer, chief market analyst at KCM Trade, said continued attacks around the Strait of Hormuz had not intensified enough to force a renewed geopolitical risk premium into crude prices.
Oil is now facing pressure from both sides of the market. The perceived risk of major U.S.-Iran escalation is falling while physical supply is recovering. OPEC production rose sharply in October, Gulf exports are improving and JPMorgan estimates global supply exceeded demand by about 1.4 million barrels per day.
OPEC crude production increased by 1.38 million barrels per day in October to 22.87 million bpd, according to a Reuters survey.
The gains were led by Saudi Arabia, Kuwait and Iraq.
October output reached approximately 90% of the 25.48 million bpd produced by the group's 11 members in February, before the Iran conflict disrupted Middle Eastern production and exports.
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The physical crude market is also showing signs of loosening as Middle East exports recover and demand responds to months of elevated energy prices.
JPMorgan estimates global oil supply exceeded demand by approximately 1.4 million barrels per day in October.
The weakening of physical Brent pricing in recent weeks provides another indication that immediate supply tightness is easing.
Shipping attacks around the Strait of Hormuz continue, preventing traders from fully removing the geopolitical premium from crude.
Analysts caution that a renewed escalation could quickly disrupt Gulf exports and reverse part of the recent price decline.
The oil market therefore remains caught between improving supply fundamentals and unresolved security risks.
The next major test is whether U.S.-Iran negotiations produce durable de-escalation while Middle Eastern production and exports continue recovering.
If supply recovery continues while demand remains weak, the emerging global surplus could place additional pressure on crude prices. Renewed disruption around Hormuz would challenge that outlook.
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Courtesy: www.reuters.com
