Oil prices fell more than 3% in early Asian trading on Monday, after Iranian and Qatari officials held talks for the third consecutive day aimed at reaching an agreement to end the American-Israeli war on Iran, amid hopes of diplomatic progress that could ease fears of a fresh military escalation.
By 04:07 GMT, Brent crude futures had dropped $3.68, or 3.2%, to $109.75 per barrel, while the US benchmark West Texas Intermediate fell $3.43, or 3.3%, to $100.69 per barrel.
Brent had ended October trading at its highest level in six months, amid fears of renewed escalation between the United States and Iran after the US midterm elections scheduled for Tuesday.
Tim Waterer, market analyst at KCM Trade, said the morning decline in oil represents a technical correction after strong gains last week, adding that hopes for continued diplomatic progress and the absence of major military escalation early in the week eased immediate pressure on prices.
However, he noted that the market is still awaiting the possibility of escalating rhetoric about Iran, which could push Brent toward $120 per barrel after the midterm elections.
Iranian Foreign Minister Abbas Araghchi said on Sunday that the “ongoing and advanced” talks aim to continue consultations with Qatari mediators, affirming Tehran’s readiness to “defend itself and engage in diplomacy at the same time.”
The talks are taking place as oil tankers transiting the Strait of Hormuz come under attack, raising energy and shipping costs globally. Two of three ship-tracking firms reported that Saudi Arabia increased its crude exports in October compared to September, despite attacks by the Houthis, who are allied with Iran, on the kingdom’s energy infrastructure.
ING bank analysts said in a client note that oil price movements over the past few weeks reflect the market’s growing readiness for the possibility of renewed fighting between the United States and Iran.
They added that the key question, should the midterm elections pass without strikes or an agreement, is whether the market will continue pricing in a significant geopolitical risk premium or whether that premium will gradually begin to fade.
In a related development, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, within the OPEC+ group, kept production targets for December unchanged, a step that strengthens expectations that no further adjustments to production policy will be made before next year, amid continuing disruptions to oil exports caused by the war on Iran.
