Oil prices declined on Monday after US President Donald Trump indicated that he was unlikely to order fresh military strikes against Iran as long as talks to end the conflict continued. However, attacks on ships in and around the Strait of Hormuz kept concerns about possible disruptions to global oil supplies alive.
(Pexel/Representative image) (Pexel)
Brent crude futures fell 75 cents, or 0.75%, to $97.57 per barrel by 1011 GMT on Monday. US West Texas Intermediate (WTI) crude futures also dropped 38 cents, or 0.4%, to $90.45 per barrel, Reuters reported.
Brent crude records biggest weekly fall since Covid
Brent crude prices plunged 16% last week. This was the benchmark’s biggest weekly decline since the beginning of the Covid-19 pandemic, showing how sharply oil prices have fallen amid changing expectations about the US-Iran conflict and global supplies.
US-Iran peace hopes push oil prices lower
Oil prices have continued to decline because investors are hopeful that the US and Iran could reach a peace agreement. Ole Hansen, an analyst at Saxo Bank, said oil was trading lower because of hopes for a US-Iran peace deal rather than clear signs of progress. He added that Trump’s latest comments, indicating that fresh strikes against Iran were highly unlikely, had added further pressure on oil prices.
Weakness in the physical oil market is another reason behind the fall in prices. Giovanni Staunovo, an analyst at UBS, said continued high oil flows from the Middle East were putting pressure on prices. This means that oil supplies from the region have remained strong despite concerns about the conflict.
Trump rules out fresh Iran strikes amid Hormuz concerns
Trump said on Sunday that he was highly unlikely to order fresh attacks on Iran as long as negotiations to end the conflict continued. However, his comments came even as the US and Iran reported attacks on shipping in or near the Strait of Hormuz, a major route for global oil transportation, according to Reuters.
Before his latest comments, Trump had suggested that the US could renew attacks on Iran after last week’s US midterm elections. However, there has been no indication of a large-scale US military operation so far. Iran has also warned that it would respond to any attacks by targeting US and Israeli targets.
Trump’s latest comments have raised questions about whether his position on the Iran conflict has changed for the long term. Tim Waterer, chief analyst at KCM Trade, described Trump’s comments as more measured. However, he said oil markets were waiting to see whether the US midterm elections had led to a lasting change in Trump’s approach to the conflict or whether his latest comments were only a temporary shift in tone, according to Reuters.
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Global oil supply surplus raises concerns
Oil markets could face another supply glut as oil production and supplies increase while demand remains weak. According to a JPMorgan report published on Friday, recovering oil flows from the Middle East, higher production from other countries and weak demand have pushed global oil supply above consumption.
JPMorgan estimated that the global oil market had a supply surplus of 1.1 million barrels per day in September. The bank expects this surplus to widen to 1.4 million barrels per day in October. A supply surplus means that more oil is being produced than consumers and businesses are using, which can put further pressure on prices, according to Reuters.
Houthi attack on Saudi Aramco, fire at Russian refinery
Separately, Yemen’s Iran-aligned Houthi group said it was responsible for an attack on Saudi Aramco’s offices in Riyadh on Sunday. The development adds to security concerns around the Middle East, a major oil-producing region.
In another development, a fire broke out at Russia’s Kirishi oil refinery following a Ukrainian drone attack in the region on Monday. Alexander Drozdenko, the regional governor, confirmed the fire after the reported drone attack, according to Reuters.
Although oil prices have declined following Trump’s comments about avoiding fresh attacks on Iran, shipping attacks near the Strait of Hormuz and developments involving Saudi Arabia and Russia continue to create uncertainty. Investors are closely watching the US-Iran talks, oil supply levels and security developments to understand the direction of crude oil prices.