SEATTLE (Oil Monster): Oil prices fell sharply on Monday after U.S. President Donald Trump said renewed attacks on Iran were highly unlikely if negotiations to end the conflict continued to make progress, while recovering Middle East supply added further pressure to crude.
Brent crude futures fell $3.49, or 3.6%, to $94.83 a barrel by 1219 GMT, while U.S. West Texas Intermediate crude declined $2.66, or 2.9%, to $88.17.
The decline followed comments from Trump indicating that renewed U.S. military strikes against Iran were unlikely as long as negotiations continued to advance.
"It depends on whether or not they sign a very strong agreement," Trump told CNN. "The answer is, highly unlikely it's going to be necessary."
The latest weakness followed a steep selloff last week, when Brent fell approximately 16% and touched a two-month low.
The weekly decline was the benchmark's sharpest percentage drop since the start of the COVID-19 pandemic.
Markets have increasingly reduced the geopolitical risk premium attached to the Iran conflict as diplomatic efforts intensify following the U.S. midterm elections.
Oil is now reacting not only to the possibility of fewer military strikes, but to what a wider de-escalation could mean for physical supply. Middle Eastern crude flows have recovered sharply and JPMorgan estimates the global market moved into a 1.4 million bpd surplus in October. A durable U.S.-Iran agreement could ease shipping risks and allow even more Gulf barrels back into the market.
JPMorgan said recovering Middle Eastern exports, higher production elsewhere and weaker demand had already pushed global oil supply above consumption.
The bank estimated the market moved into a surplus of 1.1 million barrels per day in September, widening to 1.4 million bpd in October.
Reuters analysis published Monday said October oil exports through the Strait of Hormuz recovered to approximately 10.3 million bpd, while total Middle Eastern exports moved closer to pre-war levels.
Also Read: Global Oil Surplus Widens as Gulf Exports Recover
Iraq also announced Sunday that it had reached an understanding with the United States allowing Iraqi crude exports to move through the Strait of Hormuz using a shipping lane near Oman.
Iraqi Foreign Minister Fuad Hussein said the Iran conflict and disruptions to the country's oil exports had caused approximately $60 billion in losses.
Iraqi oil exports recovered to about 3.5 million barrels per day in October after falling to approximately 2.65 million bpd in September.
Despite the diplomatic progress, attacks on shipping in and around the Strait of Hormuz continue.
Both Iran and the United States have reported vessel incidents near the waterway, while Iran-aligned Houthis claimed responsibility for an attack on a Saudi Aramco office building in Riyadh on Sunday.
Saudi authorities reported limited damage and no casualties.
The continued attacks mean the physical security risk has not disappeared even as financial markets price in a greater probability of de-escalation.
Trump is expected to meet Qatar's prime minister as mediation efforts intensify, but senior U.S. and Gulf officials have cautioned that an immediate agreement remains unlikely.
Washington has rejected Iran's existing proposal, which would include changes to the U.S. blockade, sanctions and Iran's restrictions on traffic through the Strait of Hormuz.
The key test for oil prices is whether diplomatic talks produce a concrete U.S.-Iran agreement rather than another temporary reduction in tensions.
A durable deal could further reduce shipping costs and allow additional Middle Eastern crude onto the market, potentially adding to the emerging global surplus. Renewed military escalation or tanker attacks, however, could quickly restore part of the risk premium.
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Courtesy: www.reuters.com
