Oil prices fell for a fourth straight day on Thursday. Traders were reacting to the setbacks Donald Trump’s Republican Party suffered in this week’s Congressional elections, which could lower the chances of the US-Israeli war on Iran widening further.
Brent crude futures dropped 97 cents, or 1.03%, to $93.65 a barrel by 0211 GMT. US West Texas Intermediate futures were down $1.14, or 1.29%, at $86.98.
Both benchmarks had already tumbled more than 8% in the previous session, closing at their lowest level since August 31.
Shifting political mood
Two people close to Gulf government circles said on Wednesday that a weakened Trump now has more reason to pursue a deal. He faces a Democratic Congress that can limit his military options. They added that a full-scale assault on Iran now looks less likely.
Analysts say a settlement could restore oil flows from the Middle East that the war has disrupted. They also warn that the way forward remains uncertain.
June Goh, senior oil analyst at Sparta Commodities, said markets were weighing the midterm results against Trump’s next steps in the conflict. Investors are now pricing in a greater chance that the war will end. She cautioned, however, that volatility will continue. The road to full diplomacy is still full of unknowns, and global strategic reserves have been drawn down to very low levels.
Supply returning
Crude shipments through the Strait of Hormuz, the key waterway for most Gulf oil supplies, have recovered to close to pre-war levels, according to analysts. The cost of getting that oil moving, however, is higher.
JPMorgan said in a note on Wednesday that the return of Gulf supply has pushed the global oil market back into surplus after months of disruption caused by the war. The bank estimates the surplus reached 1.1 million barrels per day in September and widened to 1.4 million barrels per day in October. That nearly matches last year’s average surplus of 1.3 million barrels per day.
Doubts about lasting relief
The sharp selloff may not last. Asked whether prices were likely to stay lower after the election, Mukesh Sahdev, chief executive of energy consultancy XAnalysts, said no.
Sahdev said geopolitical risks remain hard to predict. He pointed out that the incoming Congress will not take office until January, so US policy options have not changed immediately. He also noted that commercial oil inventories in major consuming countries are near their lowest level in 15 years. In his view, Iran could emerge from the US election outcome with greater resolve.
Stockpiles drop
US crude, gasoline and distillate inventories all fell last week, as demand hit its highest level in a year, the Energy Information Administration said on Wednesday.
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